Questions for Tuesday: ‘Congratulations’ or ‘Get Well Soon’ for Moonpig? Will Pennon clean up its ac

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As Pennon Group PLC (LSE:PNN, OTC:PEGRY) pumps out a trading update on Tuesday, there are some in City that reckon its shares may have become expensive and that the bar of expectations is set high.


Last month, Credit Suisse analysts in London questioned whether it was time to sell Pennon shares as it switch its rating to ‘underperform’.


Analysts at the Swiss investment bank essentially suggested the stock has been ‘overbought’ and said it is expensive compared with both the sector and the FTSE 100, pointing out that it trades at a 43% premium to the regulated asset base (RAB), which it said is “at extremes” for the industry.


At the same the Swiss Bank’s analysts note that the dividend yield of 3% was at historic lows.


Other investors might be more concerned that it is the reputation of the company’s main operation arm, South West Water, that remains at historic lows, having been cited by the UK Environmental Agency for again being one of the worst water performers in the sector for allowing raw sewage to spill into rivers and the sea – with the failings having been pretty much unimproved for 10 years in a row.


Pennon recently confirmed it is sitting on a GBP3bn cash pile, but directors say they intend to spend much of this on acquisitions rather than improving their network to reduce the number of sewage release incidents.


‘Congratulations’ or ‘Get Well Soon’ for Moonpig


Investors in Moonpig Group PLC (LSE:MOON) (LSE:MOON) will hope the online greetings card specialist will come up with a better message in Tuesday’s update after a lukewarm outlook missive in the summer.


Back in July the London market newcomer forecast lower revenue for the current financial year of GBP250-260mln compared to GBP368mln last time as pre-pandemic consumer patterns return.


While the new financial year had started “moderately ahead of expectations”, customer purchase frequency was expected to slow down until it stalls at 5% ahead of pre-pandemic levels.


However, the online card and gift shop said it will continue scaling its business as it was buoyed by customer retention levels during the past year remaining consistent with historical patterns.


With shoppers no longer confined to home, hanging onto newly acquired customers is likely to be a costly business, said analyst Susannah Streeter at Hargreaves Lansdown.


But having now acquired a huge data set on customer choices and preferences, alongside its flexible delivery options, this “should help it stay ahead of the herd”, Streeter says, though “big chunks” of future profits are likely to be dedicated to trying to gobble up an even bigger share of the card market in the UK and the Netherlands.


Major announcements expected on Tuesday 28 September:


Finals: Close Brothers PLC, Ferguson PLC, Smiths Group


Interims: AG Barr, Mortgage Advice Bureau PLC, Next 15 PLC, S&U PLC


Trading announcements: Moonpig PLC, Pennon Group PLC (LSE:PNN, OTC:PEGRY)


Economic data: UK 30-year treasury gilt auction, US trade, US consumer confidence

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