United Utilities: Investments and Returns Guidance Raised, Fair Value Upped by 53%

Key Morningstar Metrics for United Utilities Group

• Fair Value Estimate
  : GBX 1,880
• Morningstar Rating
  : ★★
• Morningstar Economic Moat Rating
  : None
• Morningstar Uncertainty Rating
  : Low

United Utilities released fiscal 2026 results above FactSet consensus and raised its AMP8 guidance by £2.5 billion or 28% for investments and by 1% to 10%-11% for regulatory return on equity. The firm intends to raise £0.8 billion of equity. Shares rose nearly 14% on April 30.

Why it matters: £1.4 billion of the £2.5 billion in additional investments are submitted to the regulator, Ofwat, on April 30 as part of the 2026 re-opener process. The balance will be submitted in 2027 and 2028. The £1.4 billion will be mostly used to support the water needs of data centers and new homes.

• The company raised its regulated capital value CAGR guidance to 10% from 7% under over 2025-30. The primary driver of the 1% increase in the regulated return is financing outperformance. The second one is higher operational performance, rewarded by outcome-delivery incentives.
• The £0.8 billion equity raise amounts to about 9% of the market capitalization before the announcement. We assume it will be done with a 5% discount to the April 30 share price.

The bottom line: We surmise that Ofwat will clear 80% of the additional investments requested by the firm, that is, £2 billion. We now expect a 2025-30 RCV compound annual growth rate of 9.5%, up from 7% previously. This, combined with higher returns, drives a 63% increase in our long-term earnings estimates.

• In addition, we expect the RCV to grow faster than we previously expected in the 2030-35 AMP9 regulatory period, as data center growth and tightening environmental regulations will persist. Accordingly, we raise the growth rate of stage 2 of our discounted cash flow model to 7% from 5%.
• On the bottom line, we raise our fair value estimate to GBX 1,880 from GBX 1,230.

Coming up: We reckon that directional guidance for fiscal 2027 implies fiscal earnings per share of GBX 113, 5.6% higher than in fiscal 2026.

• Ofwat will release its draft decision regarding the 2026 re-opener on Aug. 15.