Heavy losses on financial instruments and overseas investments hit
Severn Trent Water saw a 2 per cent fall in water usage during the 12-month period but still managed to increase revenues by 4.9 per cent to £1.46bn after pushing through a 5.2 per cent regulatory price increase in line with inflation. The water utility spent £474m in capital investments and chief executive Tony Wray said that a further £570m-£590m will be spent in the coming year. Debt collection is still improving, with bad debts 9.8 per cent lower at £30.3m.
The group's reported results were hit by £50.9m in exceptional items including a £12m write-down in the UK Laboratories unit after the loss of two key customers and a further £10.9m impairment charge on the Italian and Spanish businesses reflecting the cautious backdrop in these countries. Restructuring of the water business led to a £11.5m exceptional charge.
Analysts at Deutsche Bank forecast adjusted pre-tax profits of £308m and EPS of 96.8p (from £275m and 88.9p in 2012).
|SEVERN TRENT (SVT)|
|ORD PRICE:||1,664p||MARKET VALUE:||£4bn|
|TOUCH:||1,664-1,665p||12-MONTH HIGH:||1,721p||LOW: 1,349p|
|DIVIDEND YIELD:||4.2%||PE RATIO:||23|
|NET ASSET VALUE:||413p*||NET DEBT:||404%|
Severn Trent's UK water business is performing well, but there are worrying issues in overseas operations. The special dividend is welcome, but the shares already trade on 17 times forecast earnings, a premium to the sector, so we retain our hold recommendation.
Last IC view: Good value, 1,485p, 25 Nov 2011