The reported fall in profits at Severn Trent (SVT) isn't meaningful, mainly reflecting a £44m tax rebate in the first half of 2013. Adjusting for that refund and other exceptional items, the water provider's pre-tax profit grew by around 10 per cent to £156m.
Turnover for the regulated water business grew 2.4 per cent to £793m. Prices rose 1.5 per cent in April, which management stressed was lower than inflation. Water consumption was also slightly higher for those customers with meters, as a result of the dry summer. But underlying operating profits rose just 2.1 per cent to £275m, as costs rose slightly faster than revenues. Meanwhile, pre-tax profits from the unregulated services business rose fourfold to £6.4m, on revenues of £155m.
But what really matters for investors in the coming years is water regulator Ofwat's so-called determination, expected on 12 December. This will set the group's pricing and service requirements for the regulatory period 2015-20, called AMP 6.
Management is responding to the likely shape of AMP 6 with a new organisational structure. This is likely to involve 500 job losses in the second half, saving £400m a year. Management will also have to review Severn Trent's dividend policy, which currently allows for increases of RPI plus 3 per cent. Investors can expect an update early next year.
Broker Whitman Howard expects adjusted EPS of 92.7p this year, up from 88.4p in 2013-14.
SEVERN TRENT (SVT) | ||||
|---|---|---|---|---|
| ORD PRICE: | 2,054p | MARKET VALUE: | £4.9bn | |
| TOUCH: | 2,052-2,054p | 12-MONTH HIGH: | 2,086p | LOW: 1,626p |
| DIVIDEND YIELD: | 4.0% | PE RATIO: | 25 | |
| NET ASSET VALUE: | 438p | NET DEBT: | £4.4bn | |
| Half-year to 30 Sept | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 922 | 191 | 145.0 | 32.16 |
| 2014 | 948 | 138 | 45.1 | 33.96 |
| % change | +3 | -28 | -69 | +6 |
Ex-div: 4 Dec Payment: 9 Jan | ||||
