EU UTILITIES: ⚡️ ???????? UK Power Networks: Credit Profile
(UKPONE; A3/A-/BBB+)
- Issuing from London Power Networks subsidiary. Senior unsecured ratings: A3/A-/A-.
- Pure electricity distribution business. Mostly regulated activity, with a small unregulated services division.
- UKPN is owned by infrastructure funds CK Infrastructure, Power Assets and CK Asset.
- It is committed to at least Baa1/BBB+/BBB+ ratings.
- The current RIIO-ED2 regulatory period runs until March 2028. ED3 consultation begins in August this year and will include long term planning to 2050. Capex is ~28% higher annually than under ED1.
- It has 59% RAV gearing, close to regulatory assumptions. It expects future regulatory gearing limits at 75% and two IG ratings to be required.
- At its July 2024 update, Fitch expected 60-63% RAV gearing through ED2 with a 70% ratings threshold, allowing for higher capex and dividends. It expected PMICR around the 1.6x ratings sensitivity level due to lagged inflation adjustments which will feed through in FY26.
- Moody’s has the same PMICR threshold and expected it to remain above 1.6x at the February 2023 upgrade. It expected gearing around 60% against a 68% threshold. At the group level, it expected higher gearing at 70% due to shareholder loans.
- UKPN underspent totex by 13% in Year 1 of ED2. Fitch assumes a 10% average underspend. It can retain 50% of savings under the incentive mechanism. Fitch also expects ~£25m ODI-F incentive awards annually. That is helped by a strong customer satisfaction track record, where it was ranked no.1 in 2023/2024 and expects similar ratings this year.
- In July 2024 S&P expected FFO/Debt to remain significantly above the 13% downside threshold.
- Comps include SSE and National Grid. Comparability is limited with distribution a minority part of their businesses.
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Historical bullets
USDCAD TECHS: Hits Bear Trigger, New Cycle Low
- RES 4: 1.4415 High Apr 1
- RES 3: 1.4296 High Apr 7
- RES 2: 1.4087 50-day EMA
- RES 1: 1.3906/3935 High Apr 17 / 20-day EMA
- PRICE: 1.3793 @ 17:00 BST May 2
- SUP 1: 1.3760 Low Apr 21 and the bear trigger
- SUP 2: 1.3744 76.4% retracement of Sep 25 ‘24 - Feb 3 bull run
- SUP 3: 1.3696 Low Oct 10 2024
- SUP 4: 1.3643 Low Oct 9 ‘24
The trend set-up in USDCAD deteriorated further Friday, with prices slipping through the bear trigger to narrow the gap with next support. The fresh cycle low reinforces the bear cycle and signals scope for a continuation near-term. Potential is seen for a move towards 1.3744, a Fibonacci retracement. Moving average studies are in a bear mode position, highlighting a dominant downtrend. First resistance to watch is 1.3943, the 20-day EMA.
AUDUSD TECHS: Consolidation Phase
- RES 4: 0.6550 61.8% retracement of the Sep 30 ‘24 - Apr 9 bear leg
- RES 3: 0.6528 High Nov 29 ‘24
- RES 2: 0.6471 High Dec 9 ‘24
- RES 1: 0.6470 High May 2
- PRICE: 0.6445 @ 16:59 BST May 2
- SUP 1: 0.6344/6316 Low Apr 24 / 50-day EMA
- SUP 2: 0.6181 Low Apr 11
- SUP 3: 0.6116 Low Apr 10
- SUP 4: 0.5915 Low Apr 9 and key support
AUDUSD remains inside a consolidation phase, having traded either side of the 0.6400 level for 10 consecutive sessions. The underlying trend remains bullish and the pair is trading close to recent highs. Price has recently breached a key resistance at 0.6409, the Dec 9 ‘24 high. This breach reinforces bullish conditions and signals scope for a continuation higher near-term. Sights are on 0.6471 next, the Dec 9 2024 high. Initial key support to monitor is 0.6316, the 50-day EMA. A clear break of this EMA would be a concern for bulls.
US TSYS: Rates Retreat, Sentiment Improved Though Trade Risk Remains
- Treasuries look to finish near late Friday session lows after trading firmer on the open, higher than expected Nonfarm payrolls at 177k (sa, cons 138k) of which private contributed 167k (sa, cons 125k) triggered the early reversal.
- However, two-month revisions of -58k offset the 39k beat for nonfarm payrolls, with a similar story for private (a 42k surprise vs -48k two-month revision).
- Stocks are back near four week highs - pre-"Liberation Day" levels as hopes of some trade deal being made improved sentiment.
- The Wall Street Journal reports that "Beijing is considering ways to address the Trump administration’s gripes over China’s role in the fentanyl trade... potentially offering an off-ramp from hostilities to allow for trade talks to start." The Journal notes that "discussions remain fluid" and China "would like to see some softening of stance from President Trump".
- Currently, the Jun'25 10Y contract trades -20 at 111-07.5 vs 111-02 low -- initial technical support (50-dma) followed by 110-16.5/109-08 (Low Apr 22 / 11 and the bear trigger). Curves bear flattened, 2s10s -3.480 at 48.002, 5s30s -4.911 at 86.807.
