Higher tariffs in the regulated water and waste water businesses lifted Severn Trent’s (SVT) revenue in the first half of the year, but underlying profit before interest and tax (PBIT) fell 4.3 per cent to £286m. This came amid a £10.7m increase in infrastructure renewal expenditure (IRE) to complete projects for the current regulatory period, AMP6, and the deferral of outperformance delivery incentive (ODI) rewards to AMP7.
Ofwat previously imposed a cap on waste ODI rewards, which has now been raised after the group agreed to set itself more stringent targets. While it expects a small penalty on some measures, overall Severn anticipates at least £25m of net customer ODI rewards across the water and waste businesses this year.
In the business services division, lower proceeds from disposals in property development also weighed on group operating profit – last year it benefited from an £18.4m profit from the sale of land to Persimmon (PSN). Severn is targeting £100m of operating profit from property by 2027, having delivered £33m to date.
Net capital expenditure jumped by 10 per cent to £374m. Together with timing changes increasing the amount of tax paid during the period, free cash flow plunged by more than 60 per cent to £26.9m. Net debt has increased by 8 per cent to £5.8bn.
RBC Capital Markets forecasts adjusted pre-tax profit of £352.3m and EPS of 134.7p for the March 2020 full year, down from £379m and 145.8p in FY2019.
| SEVERN TRENT (SVT) | ||||
| ORD PRICE: | 2,294p | MARKET VALUE: | £5.5bn | |
| TOUCH: | 2,293-2,295p | 12-MONTH HIGH: | 2,379p | LOW: 1,758p |
| DIVIDEND YIELD: | 4.2% | PE RATIO: | 18 | |
| NET ASSET VALUE: | 517p | NET DEBT: | £5.8bn* | |
| Half-year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2018 | 882 | 299 | 69.8 | 37.35 |
| 2019 | 910 | 285 | 61.7 | 40.03 |
| % change | +3 | -5 | -12 | +6 |
| Ex-div: | 28 Nov | |||
| Payment: | 3 Jan | |||
| *Excludes lease liabilities of £129m | ||||
