Severn Trent to 'work constructively' on sewage probe

Water utilities have been the focus of far more attention than usual in recent months, largely thanks to Southern Water’s sewage dumping. Severn Trent (SVT) has plenty of the same policies in place to deal with 'overflow', and will face further scrutiny for its dumping into rivers from tighter government controls in the works currently.

Meanwhile, Severn Trent has now brought forward its timeline to improve river quality as per Environment Act guidelines within nine years instead of 25 years. The water provider also said it would support an Ofwat and Environment Agency investigation into ‘unpermitted sewage discharges’. “We welcome the opportunity to work constructively and collaboratively with our regulators on this,” said Severn Trent chief executive Liv Garfield. 

The commitment came alongside the company’s interim results, which included higher turnover and profit before income and tax thanks to business demand climbing on 2020. 

Severn Trent has held onto full-year guidance and announced an interim dividend of 40.86p, flat on last year. The policy is a CPIH (consumer prices plus housing) index increase in the payout, so this will likely climb at least a few percentage points at the end of the financial year in March. 

Both the water and waste division and business services showed improvement, although the earnings per share figure did not reflect these gains, as the post-2023 increase in corporation tax from 19 per cent to 25 per cent announced by the government earlier this year had to be counted as part of Severn Trent’s deferred tax liability, resulting in a £294m charge. Fellow water companies United Utilities (UU.) and Pennon (PNN) have said they would see similar tax charges. 

This investigation into river pollution could result in challenges for the company - especially with the government fired up about this issue - but this will take some time to take shape. Buy. 

Last IC View: Buy, 2,466p, 25 Nov 2020