The UK water sector is set for stability through the end of 2017 but may face challenges later, according to Moody’s Investors Service. Revenue is largely predictable while the current regulatory period lasts until 2020, but low interest rates and moves towards further competition may increase business risk. Yorkshire and Southern Water Services face risks due to long-term debt, and proposals to change how water companies are regulated may undermine investor confidence across the sector. Little direct impact is expected from Brexit, although cheap European Investment Bank loans may not be available, potentially increasing the cost of debt.

Key Takeaways:

• The outlook for the UK water sector is stable over the next 12 to 18 months as companies have good visibility over allowed revenues for the remainder of the regulatory period to 2020
• However, continuing low interest rates and ongoing regulatory developments towards further competition in the water sector could increase business risk for the sector beyond 2020.
• Moody’s expects that upstream reforms will also be credit negative for the UK water sector over the long-term as they may add further cash flow volatility from 2020.

“Moody’s expects that upstream reforms will also be credit negative for the UK water sector over the long-term as they may add further cash flow volatility from 2020.”

https://www.moodys.com/research/Moodys-UK-water-sector-outlook-stable-into-2017-but-long–PR_356335