In common with industry rivals, Severn Trent's (SVT) half-year revenues were constricted due to tighter price controls, which regulate how much water companies can charge their customers. Reported profits were inflated by gains on interest rate swaps, while underlying pre-tax profits rose by 2.6 per cent to £281m.
Overall, shareholders can take encouragement from Severn's operational progress and there are certainly incentives in place to keep improving. The water group has the opportunity to gain up to £70m each year via increasing bills, if it outperforms Ofwat's new outcome delivery incentive (ODI) measures. Outperformance is judged according to customer feedback on service improvements. Management reckons the group will deliver £10m in outperformance for the full year.
Severn found a further £72m in efficiency savings during the period, meaning it has now secured the full £372m in target efficiencies required for the AMP6 regulatory period. These savings came primarily from negotiating better terms with the group's suppliers and improving its capital programme. Severn Trent reduced its average cost of debt to 4.6 per cent, from 5.5 per cent, while paring back the rate of bad debts. The group's wholesale total expenditure was £467m during the period, while capital expenditure for its regulated water and waste water business was £184m.
Macquarie anticipates adjusted EPS of 99p for the March 2016 year-end, compared with 107p in 2015.
SEVERN TRENT (SVT) | ||||
|---|---|---|---|---|
| ORD PRICE: | 2,188p | MARKET VALUE: | £5.17bn | |
| TOUCH: | 2,187-2,189p | 12-MONTH HIGH: | 2,275p | LOW: 1,907p |
| DIVIDEND YIELD: | 3.8% | PE RATIO: | 34 | |
| NET ASSET VALUE: | 393p | NET DEBT: | £4.64bn | |
| Half-year to 30 Sept | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2014 | 898 | 137 | 44.8 | 33.96 |
| 2015 | 896 | 186 | 60.5 | 32.26 |
| % change | -0.2 | +36 | +35 | -5 |
Ex-div: 3 Dec Payment: 8 Jan | ||||
