United Utilities' shares edged down today while trading is seen in line with expectations, but analysts point to a challenging long term outlook.
In a trading update for the year to the end of March, Britain's largest listed water supplier said revenue is expected to be slightly lower than last year due to the impact of its Water Plus joint venture, which was completed in June 2016.
Underlying operating profit is expected to be moderately higher for the utilities firm, which supplies water in Cheshire, Lancashire and Cumbria.
Infrastructure renewals expenditure (IRE) increased slightly in the second half of the year, but United said its full-year IRE estimate will remain at around £800m, which is moderately lower than last year, due to a different mix of capital investment.
The firm expects an impact from higher retail price index inflation, forecasting underlying net finance expense for the year at around £240m.
The FTSE 100 firm's share price closed down 0.6 per cent at 1,000p.
Jia Man Neoh, analyst at S&P Global, maintained a "sell" rating.
"We maintain our recommendation at sell due to challenging long-term outlook from regulatory reforms, in addition to potential downward revision in return allowance for the 2019 price review following launch of consultation on cost of debt approach last year."
United said service delivery across the wastewater business has been good throughout the year, and underlying performance across the water system has improved year-on-year despite a small number of bursts.
The firm, which will announce full-year results on 25 May, also expects to be one of the top performing listed water and sewerage companies on the service incentive mechanism, which is designed to encourage water companies to provide better customer service.