PPL Corp. (PPL) Reiterates Guidance Despite Brexit

Shares of the PPL Corporation (PPL) were trading down -2.11 or -5.35 percent to $37.33 per share in Friday’s premarket after the company announced that the exit of Britain from the EU will not “significantly” impact PPL’s operations in the UK. PPL Corp. stock closed at $39.44, up +0.13 or +0.33 percent in Thursday’s regular trading session.

Stock Analysis

Founded in 1920 from the merger of eight Pennsylvania utility companies, Allentown, Pennsylvania based PPL Corporation is an electric utility company serving over 10 million customers in Pennsylvania, Kentucky and the UK.
The company’s power plants operate with coal, oil or natural gas with some of them being “peaking plants”, which require a reduced staff and have a high profit margin. The company is part of the S&P 500 and is the component with the third largest exposure to the exit of Britain from the EU, with four high performance utilities servicing 8 million customers in the UK.

In a statement released this morning, PPL Corporation said that the results of yesterday’s referendum on Britain exiting the European Union were not expected to have a significant impact on the company’s UK operations. PPL said it would continue to closely monitor developments in the UK.

PPL reiterated its previously released guidance forecast for earnings of $2.29 to $2.49 per share for 2016 and its forecast for earnings from ongoing operations of $2.25 to $2.45 per share. Also, the company said it would not currently change its previous projection of +5 to +6 percent compound annual earnings growth through its fiscal 2018 year. The forecast growth reflects projected earnings compared to earnings from ongoing operations of $2.04 per share from 2014.

William H. Spence, PPL's President, Chairman and Chief Executive Officer said in the company’s press release that, “The extent and duration of any potential decline in the value of the British pound sterling to the U.S. dollar is unknown at this time. A long-term reduction in the value of the pound as a result of the U.K. referendum could require us to reassess our earnings growth rate,” he added that, “We have implemented an effective hedging program that substantially protects us against fluctuations in foreign currency exchange rates through 2017. In addition, any negative exposure to long-term changes in foreign currency exchange rates could be partially offset by other factors, including increases to U.K. inflation and interest rates that may occur as a result of actions taken in response to the referendum vote.”

PPL reported earnings of $0.67 per share in the company’s first quarter compared to a consensus of $0.75 per share. Nevertheless, the company reported its hedge against the British Pound was 93 percent for the remainder of 2016 budgeted earnings at an average exchange rate of $1.54 per pound, 89 percent hedged at a rate of $1.58 per pound for 2017, and 41 percent hedged at $1.56 per pound for 2018.

PPL stock just made a new all-time high of $39.92 per share, in part due to expectations of a “remain” outcome in yesterday’s UK referendum. Nevertheless, the impact of the UK exit from the EU has not impacted PPL as much as other stocks with exposure in the UK, thanks to the company’s forward looking hedging strategy.

Other News About PPL

Inside PPL Corporation’s Debt Profile in 1H16

Company estimates it will generate $1.3 billion in cash for distribution in 2016.

What’s Poised to Drive PPL’s Growth in the Future?

With 40 percent of its consolidated rate base in the UK, the company is the only pure play regulated utility with an international presence.

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Published on Jun 24, 2016
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2020. Content published with author's permission.

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