PPL Corporation’s U.K. Operations to be Unhurt by Brexit

Diversified utility PPL Corporation PPL announced that the decision of British citizens to move out of the European Union is not going to impact its existing operations in the U.K. PPL Corporation through its regulated distribution network serves nearly 7.8 million customers across 21,600 square miles in Wales and southwest and central England.

United Kingdom Exposure

Utilities operating in the U.S. primarily have a domestic focus while PPL Corp. is an exception. In excess of 30% of revenues of the company comes from U.K. Operations. The full implication of Brexit is yet to be ascertained and can take months to gauge the ultimate impact it will have on British citizens and for that matter on overseas companies with exposure in Britain.

View of PPL Corp.

Management expects the decision of leaving the European Union will not significantly impact its operations in the country. Management also added that it might think about altering the earnings guidance for 2016, if the value of the pound depreciates beyond their expectation over the long term.

Pound Suffers

The Brexit vote has resulted in a sharp fall in the value of the pound sterling. The pound was trading at $1.45 compared to a dollar before the referendum on hopes of a “remain” and now it is currently trading at nearly $1.35.

Guidance Maintained

PPL Corp. has maintained its ongoing earnings guidance of $2.25 to $2.45 per share. In addition, the company said it is not changing its previously announced projection of 5% to 6% compound annual earnings growth through 2018.

Our View

Thanks to PPL Corp.’s effective hedging program, fluctuations in the pound to dollar exchange rate will not hurt the company through 2017. This utility serves a strong customer base of nearly 7.8 million. Moreover, the demand for basic necessities is likely to stay even if Britain were to enter a period of downcycle.

Zacks Rank

PPL Corporation currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Avangrid, Inc. AGR, Avista Corp. AVA and Black Hills Corporation BKH, all carrying a Zacks Rank #2 (Buy).

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