United Utilities Confirms 2023 Guidance Thanks to Tax Credit

We maintain our GBX 850 fair value estimate after no-moat United Utilities UU. confirmed its fiscal 2023 guidance in a trading statement. Fiscal 2023 results will be released May 25. The 2023 dividend yield is 4.4% and the company pledges to grow the dividend in line with inflation through fiscal 2025. However, we view the shares as materially overvalued. For income-seekers interested in regulated utilities, we recommend National Grid, which yields 4.6%, pledges to grow its dividend in line with inflation through fiscal 2026, and whose shares appear fairly valued.

United Utilities indicates that fiscal 2023 revenue will be around 1% lower than previous guidance, involving a total decline of 2% versus fiscal 2022. The downgrade is driven by timing effects, chiefly lower consumption, which will be fully recovered in future. The underlying net finance expense is expected to be GBP 175 million higher than in fiscal 2022, GBP 10 million higher than in previous guidance because of higher inflation. The lower revenue and higher net finance expense will be offset by lower taxes than previously guided. The firm expects an underlying tax credit of GBP 15 million-GBP 25 million versus a tax expense of GBP 5 million-GBP 10 million thanks to higher interest charge and a change in approach to losses carried forward .