8th Feb 2023 14:19
(Alliance News) - Jefferies said Severn Trent PLC has now fully hedged its open position on power requirements for financial year 2024, but some downside risks remain.
Jefferies rates Severn Trent at 'underperform' with a price target of 2,000.00 pence.
Shares in the Coventry-based water utility were up 1.0% to 2,881.00p each in London on Wednesday afternoon.
Severn Trent on Wednesday said it has continued to deliver a strong service to customers despite facing the UK's driest summer on record, as well as a "challenging" winter.
The company said it is on course to financially support 315,000 of its most vulnerable customers by the end of its AMP 7 period. AMP 7 is the seventh asset management period set out by the UK water industry, and runs from 2020 to 2025.
The company also noted that it has been recognised by the regulator, Ofwat, as the only water and sewage company in Ofwat's leading category for performance and financial resilience.
The company said there has been no change to the business performance since the release of its interim results, and guidance for the year ending March 31 remains unchanged.
Severn Trent announced Severn Trent Green Power's acquisition of Andigestion Ltd, which operates two food waste anaerobic digestion plants, which will add 45 gigawatt hours of energy generation, increasing Green Power's output by 16%.
Severn Trent noted that it self-generates 50% of its energy consumption, which "significantly reduces the impact of higher power prices" on its shareholder returns.
The company plans to release its annual results on May 24.
Jefferies said: "We note that over the last six months, SVT has now fully hedged its open position on power requirements for [financial year 2024]. In our published model, we assume 40% open position at GBP190/MWh (60% hedged at GBP80/MWh) for [financial 2024]. If we now put in the average one-year UK forward power price over the last six months (GBP240/MWh), we see up to 4% downside risk to [the Jefferies estimate] of GBP519 million" in earnings before interest and tax in financial 2024.
"However, we note that SVT may have been able to achieve a lower power price through trading optimisation/timings, which may reduce these downside risks."
By Sophie Rose, Alliance News reporter
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