19th Jul 2023 12:20
(Alliance News) - Severn Trent PLC's first quarter results are positive, but there are deeper problems for the water utility, according to Edison.
Shares in Severn Trent were up 3.8% at 2,548.00 pence in London on Wednesday afternoon.
Edison Director of Content and Strategy Neil Shah commented: "This is a promising trading update from Severn Trent, following a month in which the financial wellbeing of utility providers had come to the forefront of public knowledge."
The Coventry-based water company said in its financial period that ended July 18 that its performance was in line with expectations, and that it had achieved GBP50 million in outcome delivery incentives, from GBP53 million the prior year, which it said reflected its "sector-leading performance" for customers.
Severn Trent said it has 45% of energy exposure locked at decreased year-on-year rates for 2024 to 2025.
The company said it expects capital expenditure to be between GBP850 million and GBP1.00 billion in the year, up at least 24% from GBP686.6 million in the prior year.
However, Shah noted that while the figures "may offer some reassurance to anxious investors", the backdrop of the Thames Water crisis highlights that the "longer-term viability of private utilities appears uncertain."
Earlier this month, Thames Water received GBP750 million from shareholders, as it struggles under GBP14 billion of debt.
Further adding to Severn Trent's problems, Shah noted, is the firm's environmental record.
Despite receiving the Environment Agency's highest rating for a fourth consecutive year, the body noted: "They are at the top of a very poor league."
"Not very promising for the company’s social purpose ambitions," Shah commented, pointing to the suggestion by Severn Trent Chief Executive Liv Garfield last month that private utilities be reformed as "social purpose" companies.
Severn Trent said it is on track to deliver its carbon-neutral waste water treatment in 2024, which it said reflected a "strong operational and environmental performance". However, Garfield did comment in the release that there is "more we can do" to deliver a positive outcome for the environment.
Edison's Shah said the firm's environmental policies will require "huge volumes of funding" in order to make progress, and in the meantime, Severn Trent will remain in "murky waters when it comes to sustainability."
By Harvey Dorset, Alliance News reporter
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