With markets experiencing more mood swings in the last few weeks than a typical teenager, finding stocks that are likely to remain stable in the months ahead could prove a challenge.
One example of a company that arguably stands a better chance than most, however, is FTSE 100 water and wastewater business Severn Trent (LSE: SVT).
A quick glance at today’s trading update from the company goes some way to explaining why.
“No material change“
In contrast to the vast majority of listed companies, Severn stated this morning that it had seen “no material change” in terms of business performance from its last trading update (28 January) to the end of March.
As a result, the £5.5bn cap expects full-year numbers to be in-line with the guidance it previously issued.
How many other firms can say that at the current time?!
In response to the Covid-19 outbreak, Severn said that it is doing all it can “to keep essential services flowing“, particularly for hospitals, schools, and care homes. Only customer visits deemed “essential” are going ahead.
Aside from this, the Coventry-based business said that it was “actively promoting” its vulnerable customer schemes for those experiencing financial difficulties as a result of the pandemic.
As positive as all this is, Severn did say that government restrictions brought in to minimise the spread of the coronavirus were likely to have “a material impact” on its non-household customers and the recovery plan of its WaterPlus business (a joint venture with United Utilities). This may go some way to explaining why shares were down this morning while the index as whole was up.
Nevertheless, I have no concerns over Severn’s finances. Less than 2.5% of its debt requires re-financing in the current year. It also has £1.1bn in cash and committed facilities to see it through.
Another option
Severn isn’t the only utility in the FTSE 100, of course. Environmental infrastructure company Pennon (LSE: PNN) is another option for cautious investors.
Yesterday’s full-year trading statement was similarly reassuring. The company stated that performance over the last year (which includes the coronavirus crisis) had been in line with management expectations.
Like Severn, Pennon said that only essential customer visits are taking place and it is prioritising support to those most vulnerable.
Like Severn, it also said that its finances were in good order to weather the coronavirus storm. In fact, the recent sale of waste business Viridor for £4.2bn, expected to complete this summer, will pretty much wipe all debt from its balance sheet.
Priced in?
Based on their share price performance over the last month (-10% and -3% respectively), both Severn and Pennon look likely to remain relative ‘safe havens’ in this unpredictable environment.
Assuming no additional crises hit, both should also continue to be good options for dividend hunters. If analyst predictions prove correct, Severn yields 4.4% for the financial year ending today. At its current share price, Pennon offers 4.1% (with, I suspect, a potential special dividend in the works).
Naturally, the only issue with all this is that neither company is cheap to buy. Severn trades at 19 times forecast earnings for the 2020–21 financial year. Pennon trades on a P/E of almost 21. As such, it’s unlikely either will soar in price when the coronavirus is overcome.
