The share price of Severn Trent (LSE: SVT) increased 1% to 1,769p this morning, after the water company announced that the group’s trading performance remains in line with expectations.
Consumption across its regular business should be slightly higher, while its unregulated business, which provides water and waste treatment products and services, suffered from fewer shipments due to delivery delays. Therefore, for the full year, profit is expected to be lower.
Severn Trent, which supplies a little under 8m homes across the Midlands and Wales, doesn’t anticipate any financial impact from the present floods. Flood defences to protect water supplies are set to be significantly tested, but they should cope well. Operating costs are expected to rise due to a combination of inflation and energy expenditure, although efficiency gains should partly make up for this.
Forecasted bad debts are around 2.2% of turnover and the firm continues to monitor developments, such as unemployment levels and changes to the UK benefit system.
Capital expenditure is expected to be between £600m to £620m, which includes an estimated £15m relating to private drains and sewers.
Before today analysts were predicting that Severn Trent’s upcoming annual results would show earnings equivalent to 89p per share and a dividend equivalent to around 72p per share.
After this morning’s price movement the shares may therefore trade on a P/E of 20 and offer a potential income of 4%.
The decision to ‘buy’ — based on those ratings, today’s results, and the wider prospects of the water sector — is, of course, your decision to make.
