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Pennon Group Plc (LON:PNN): Will The Growth Last?

Jason Fuller

The most recent earnings release Pennon Group Plc’s (LON:PNN) announced in March 2018 showed that the company experienced a robust tailwind, leading to a double-digit earnings growth of 22.1%. Below is a brief commentary on my key takeaways on how market analysts perceive Pennon Group’s earnings growth outlook over the next few years and whether the future looks even brighter than the past. I will be looking at earnings excluding extraordinary items to exclude one-off activities to get a better understanding of the underlying drivers of earnings.

See our latest analysis for Pennon Group

Market analysts’ consensus outlook for the coming year seems rather subdued, with earnings growing by a single digit 6.5%. The growth outlook in the following year seems much more optimistic with rates reaching double digit 19.5% compared to today’s earnings and decreases to UK£226.0m by 2021.

LSE:PNN Future Profit September 7th 18

While it is useful to understand the growth rate year by year relative to today’s level, it may be more valuable analyzing the rate at which the business is growing every year, on average. The pro of this method is that we can get a bigger picture of the direction of Pennon Group’s earnings trajectory over the long run, irrespective of near term fluctuations, be more volatile. To compute this rate, I put a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 7.0%. This means that, we can assume Pennon Group will grow its earnings by 7.0% every year for the next few years.

Next Steps:

For Pennon Group, I’ve compiled three important factors you should further research:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is PNN worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether PNN is currently mispriced by the market.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of PNN? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.