Over the previous 5 years the Pennon Group (LSE: PNN) share price has fallen 60%. At this time, (3 June) the corporate reported a pre-tax loss for FY25. However in occasions of misery, alternative for good traders can generally seem. So, is that this the case right here?

Loss-making

Decrease water demand coupled with a document funding programme of £650m resulted in an underlying lack of £35m. After tax is accounted for, the loss was £57m. Like lots of its friends, it’s combating a bloated steadiness sheet that has seen curiosity expense enhance 23% in 2025.

There are not any indicators that South West Water, its major buying and selling identify, is in as dire a monetary strait as, for example, Thames Water. However a spate of latest unfavorable headlines has undoubtedly been a significant contributing issue within the inventory’s decline.

Chief amongst them was the Brixham water incident final 12 months. An outbreak of the parasite cryptosporidium resulted in residents being left with no water. It confronted heavy criticism each for its gradual response and lack of communication with residents affected.

Enhanced buyer compensation along with the supply of bottled water over an eight-week interval, price it £21m. However the reputational injury was arguably way more vital.

Authorities evaluation

Its attention-grabbing that on the day of its outcomes the federal government printed an interim report into the state of the water business. It lays naked what has been recognized for a while: public confidence within the business is at document lows.

The ultimate report is due out in the summertime, however my sense is that the times of bumper dividend payouts is over for a while.

Certainly, we now have already seen this taking place with Pennon. A rights subject again in February elevated web debt to £4bn and diluted current shareholders. Consequently the dividend was re-baselined 14% decrease. Nevertheless, the dividend yield nonetheless sits at a wholesome 6.4%. Yearly will increase can be linked to the buyer price index.

Monopoly

Certainly one of purpose for investing in water corporations is income stability. As a monopoly enterprise, Pennon negotiates with the regulator each 5 years on how a lot it may possibly cost. The following management interval runs from 2025-2030.

Ofwat has already introduced vital price will increase. Consequently, in FY26, Pennon now expects earnings earlier than revenue tax, depreciation and amortisation (EBITDA) to extend by 66%. In return for price will increase, infrastructure spend will enhance.

Inspecting the chief abstract of the Impartial Water Fee’s report a lot of headlines grabbed my consideration.

Firstly, it’s not recommending the top of privatisation. The price to the taxpayer will merely be too nice. Secondly, it closely criticises the usage of five-yearly critiques, which it claims has resulted within the setting of short-term targets throughout the business.

All the business now stands at a crossroads. The spike in payments at a time of a value of residing disaster, air pollution incidents and lack of infrastructure spend is forcing authorities to behave. The predictability of future revenues is one key purpose to take a position. However ought to an final result of the ultimate report be that a lot longer-term cycles are wanted, that might upend your complete funding thesis for a lot of income-chasing traders.

With near-term uncertainty so nice, I gained’t be contemplating investing any time quickly.