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Pennon Group shares recovered some ground in London on Thursday, October 8, after dropping more than 20% the previous day, when the British water utility announced a fully underwritten £550 million rights issue and a lower dividend. Investing.com reported the shares were up 1.5% at 08:25 GMT on Thursday; the modest rebound followed a sell-off triggered by the scale of the new share issue and the reduction in shareholder income.
The fundraise is part of a wider overhaul led by chief executive Keith Haslett, who joined the role in April. Pennon says it will use the proceeds to support about £1 billion of additional investment in its regulated water businesses, taking planned capital expenditure over the five-year AMP8 regulatory period to March 2030 to approximately £3.6 billion. The company owns South West Water and SES Water.
The plan places new capital and operational changes at the centre of Pennon’s response to performance challenges, while asking existing shareholders to contribute fresh funds and accept a lower dividend. Its stated investment targets also depend partly on regulatory decisions that have not yet been finalized.
Rights issue offers shares at a steep discount
Pennon’s 7-for-15 rights issue offers 220.3 million new ordinary shares at 250 pence each, raising approximately £550 million before expenses. The subscription price is a 35.5% discount to the theoretical ex-rights price calculated from the company’s October 6 closing price of 452 pence, according to the terms announced on October 7.
The new shares would represent about 31.8% of Pennon’s enlarged share capital after the issue. The company’s announcement says shareholders who do not take up their entitlements could see their ownership diluted by as much as 31.8%; the rights are being offered in proportion to existing holdings, at seven new shares for every 15 held.
The issue is fully underwritten by Barclays and Morgan Stanley, subject to its stated conditions. Pennon’s indicative timetable says the shares are expected to trade ex-rights and the subscription period is due to begin on October 12. The company expects to announce the results by October 27, with fully paid new shares scheduled to begin trading that day.
Water investment rises to £3.6 billion
The rights issue is one element of a broader funding plan for the remainder of AMP8, the current five-year regulatory period. Pennon’s updated investment forecast for its regulated water businesses is about £3.6 billion, roughly £1 billion above its original plan. The company says it will reinvest efficiencies previously identified in its spending programme alongside the additional funding.
Ofwat’s cost change process could recognize some of the extra investment in the regulated asset base used in setting water-company price limits. In a draft determination for the 2026 round, Ofwat provisionally allowed Pennon £230 million, equal to 76% of the amount it requested, according to the company’s strategic update. Pennon submitted representations on September 24, and the regulator’s final determination is expected no later than December 15.
Pennon estimates a further £170 million of investment through the 2027 and 2028 cost-change rounds, but that spending is subject to Ofwat approval. It is targeting £400 million of additional regulatory capital value from the process and forecasts regulated-asset-value growth of more than 40% across AMP8, compared with the 34% forecast at the start of the period.
Dividend reset and debt controls
The group will reduce its total dividend for the 2026/27 financial year to approximately £125 million, from £138 million in 2025/26. Pennon expects the lower payout to apply to both interim and final dividends. After accounting for the new shares and adjusting for the issue’s bonus factor, the company estimates the underlying dividend per share will fall by about 30%, to around 18 pence.
Pennon says its dividend policy will continue to be to grow the per-share payout in line with CPIH, the consumer price index including owner-occupiers’ housing costs, from the reduced base. The company said the reset was intended to keep dividends sustainable through AMP8 and beyond, as it funds the expanded capital programme.
The funding plan also relies on debt and asset-sale measures. Pennon is considering a sale of Pennon Power, its renewables investment business; it expects around £25 million of proceeds to be reinvested in renewable generation at its own operational sites, with the remainder used to reduce group debt. Reuters reported Pennon’s debt stood at £4.51 billion at the end of March.
The company is targeting gearing of no more than 65% of regulatory capital value in its regulated water businesses during AMP8, within its stated long-term range of 55% to 65%. Group gearing is expected to be a few percentage points higher, but Pennon says it is unlikely to exceed about 70% over the period.
Operational reset faces regulatory and delivery tests
Haslett’s operational reset covers people and culture, operational excellence, asset management and reliability, environmental performance, and customer transformation. Pennon says actions already underway include appointing a chief asset officer and chief people officer, centralizing asset management and bringing leakage technicians in-house.
The company’s rationale is to improve how it plans, maintains and invests in infrastructure while addressing asset health and customer outcomes. The additional expenditure and projected regulatory-value growth remain company plans rather than completed results: delivery will depend on executing the operational changes and, for some spending, securing Ofwat approval.
The share-price recovery on Thursday followed the sharp previous-day decline but did not reverse it. The next defined milestones are the start of rights trading and subscription on October 12, the deadline for most qualifying shareholders to accept and pay on October 26, and the expected results announcement on October 27. Ofwat’s final decision on the 2026 cost-change round is due by December 15 at the latest.
