22nd May 2024 12:30
(Alliance News) - Severn Trent PLC delivered a "reassuring" update, analysts on Wednesday said, with results highlighting "their sustained sector leadership and strong financial performance."
The Coventry-based water utility company said in the year ended March 31, pretax profit was 20% higher at GBP201.3 million from GBP167.9 million the year prior.
Revenue rose 8.0% to GBP2.34 billion from GBP2.17 billion.
This increase was largely attributed to 7.8% revenue growth within the company's Regulated Water & Wastewater business to GBP2.15 billion from GBP2.0 billion.
The company increased its final dividend by 9.4% to 70.10 pence from 64.09p, giving a total dividend of 116.84p, also up 9.4%, from 106.82p.
Severn Trent said it achieved its best ever leakage performance maintaining the highest four star status from the environment agency for the fifth consecutive year.
Severn Trent was responsible for over 60,000 sewage spills in 2023, about a third higher than the prior year.
A record GBP1.2 billion was invested by the company into improving performance levels, it said.
Bank of America analyst John Campbell said it was a "reassuring" update overall.
He pointed out headline adjusted earnings per share at 79.4p beat his 77.2p forecast and the company compiled consensus of 77.3p. This reflected lower than-expected underlying net financial expenses, Campbell explained. Pretax profit was in line with his expectations, as was the dividend, he added.
Campbell noted Severn Trent states they are 'highly confident' of earning the max 4 star environmental performance assessment rating for 2023, which if realised would mark the fifth consecutive year.
While the rating carries no direct financial consequence "we consider the measure a useful external barometer of soundness," Campbell remarked.
Campbell maintained a 'buy' rating on Severn Trent.
Campbell said his relative preference for Severn Trent is predicated on its "sector-leading" operational record, not just financing gains, as evidenced by its string of outcome delivery incentives rewards and sole 4 star EA rating in the sector.
He believes this track record bodes well for future return on retained earnings and cost of equity, sweetened by the likelihood, in his view, of a step change in asset base growth in PR24.
Neil Shah, director of research at Edison Group said the results highlight "their sustained sector leadership and strong financial performance."
He pointed out with the substantial 63% increase in investment to GBP1.2 billion, the company has surpassed GBP3 billion in total asset management period investments, setting a solid pace for AMP8.
AMP8 is the next regulatory cycle for water companies, starting on April 1, 2025, and spanning five years.
"Ambitious plans, such as the PR24 strategy and early AMP8 investments, further reinforce their readiness for future challenges and opportunities," he added.
Shares in Severn Trent rose 2.1% to 2,669.00 pence in London on Wednesday.
By Jeremy Cutler, Alliance News reporter
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