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1. Company Snapshot

1.a. Company Description

Severn Trent Plc operates as a water and sewerage company in England and Wales.It operates in two segments, Regulated Water and Waste Water, and Business Services.The Regulated Water and Waste Water segment offers water and waste water services to approximately 4.8 million households and businesses in the Midlands and Wales.


The Business Services segment generates renewable energy from anaerobic digestion, hydropower, wind turbines, and solar technology; manages and sells land; and offers search services.It also provides contract services to municipal and industrial clients in the United Kingdom; and the United Kingdom Ministry of Defense for design, build, and operation of water and waste water treatment facilities and networks, as well as services to developers.The company was founded in 1974 and is headquartered in Coventry, the United Kingdom.

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1.b. Last Insights on SVT

Severn Trent's recent performance was negatively impacted by rising sewage spills and customer complaints, which overshadowed the company's pay package controversy. The water company's CEO received a £3.2m pay package despite the increase in sewage spills. Furthermore, Severn Trent's decision to outsource its Advanced Metering Infrastructure Network to Netmore Group for £200m may indicate a strategic shift, but potentially at a significant cost. Additionally, the company faces pressure in the UK water sector, with Kier securing a £139m contract for a sewage treatment project.

1.c. Company Highlights

2. Severn Trent's Strong H1 Results Driven by Operational Excellence

Severn Trent reported a strong set of interim results, with revenues growing by 16.4% year-on-year, in line with analyst estimates. The company's actual EPS came in at 1.01, beating estimates of 0.939. This outperformance was driven by the company's operational momentum, with 90% of ODI measures being green, and a strong financing position, with a gearing target of 60-65% by the end of the AMP. As Olivia Garfield noted, "the company's operational momentum is driven by 10.5 months of performance data for some measures, such as pollution and spills."

Publication Date: Nov -25

📋 Highlights
  • Upgraded ODI Guidance: Increased to at least £300 million, supported by 90% green performance measures and 10.5 months of data.
  • Strong Financing Position: Gearing target of 60-65% by AMP end, with £500 million capital efficiency target and diversified funding sources.
  • AMP8 Innovation Focus: £500 million growth opportunity through AI, modular solutions, and plug-and-play programs for operational efficiency.
  • RCV Growth Potential: Reopeners could unlock £500 million (like green recovery), but require strong capital programs and supply chain readiness.
  • RoRE Guidance Adjustment: 13% RoRE for 2025-26 driven by inflation, with £300 million outperformance and 30 bps from outstanding status.

Operational Performance

The company's operational performance was a key highlight, with significant progress made on reducing spills and improving infrastructure services. Severn Trent expects to achieve a 27% year-on-year weather-adjusted reduction in spills, ahead of its planned run rate. The company's infrastructure services business is also expected to double EBITDA, driven by growth across its businesses, including Green Power, services, and property. The company has made strategic acquisitions to benefit from growth in the water sector and secure its supply chain.

Financial Guidance

Severn Trent has upgraded its ODI guidance to at least £300 million, driven by strong performance across the basket of ODIs. The company's 13% RoRE guidance for 2025-26 is driven by higher inflation, and the math is expected to be different over a 5-year period, with £300 million of outperformance and 30 basis points from outstanding status.

Valuation

Severn Trent's valuation metrics suggest that the market is pricing in a certain level of growth and profitability. The company's P/E ratio stands at 36.39, while its EV/EBITDA ratio is 16.59. The dividend yield is 4.38%, indicating an attractive income stream for investors. With a ROE of 12.78%, the company is generating strong returns on equity.

Outlook

3. NewsRoom

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British Land promoted to FTSE 100 as WPP falls out after nearly three decades

Dec -04

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What Catalysts Are Shaping the Changing Story for Severn Trent?

Nov -24

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Severn Trent's (LON:SVT) Dividend Will Be £0.504

Nov -22

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Longest serving female FTSE 100 boss steps down

Nov -20

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Severn Trent boss to step down after 11 years in top role

Nov -19

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ESG Is Still a Winner in Europe. Defining It Is Difficult.

Oct -10

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Severn Trent Selects Netmore to Deploy and Manage Advanced Metering Infrastructure Network for One Million Smart Water Meters

Sep -02

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For US Companies, Europe Is Hard to Resist: Credit Weekly

Aug -02

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4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (7.15%)

6. Segments

Regulated Water and Waste Water

Expected Growth: 7%

Severn Trent Plc's Regulated Water and Waste Water segment growth is driven by increasing water demand, population growth, and infrastructure investments. Additionally, regulatory frameworks, such as the UK's Water Industry Act, support investments in water and wastewater infrastructure, contributing to the 7% growth rate.

Business Services

Expected Growth: 9%

Severn Trent Plc's Business Services segment growth of 9% is driven by increasing demand for water and waste management services, regulatory support for infrastructure investments, and strategic acquisitions. Additionally, the company's focus on operational efficiency, cost savings, and customer retention has contributed to the growth. Furthermore, the segment has benefited from the UK's growing economy and increasing industrial activity.

Consolidation Adjustments

Expected Growth: 5%

Severn Trent Plc's 5% consolidation adjustments growth driven by efficient cost management, strategic acquisitions, and investments in water infrastructure. Regulatory approvals and favorable tariffs also contributed to growth. Additionally, the company's focus on operational excellence, customer service, and environmental sustainability initiatives supported revenue expansion.

Corporate and Other

Expected Growth: 6%

Severn Trent Plc's Corporate and Other segment growth of 6% is driven by efficient cost management, effective capital allocation, and strategic investments in growth initiatives. Additionally, the segment benefits from a strong balance sheet, enabling the company to invest in digital transformation and innovation, further enhancing operational efficiency and driving growth.

7. Detailed Products

Water Supply

Severn Trent Plc provides clean and safe drinking water to households and businesses across the UK.

Wastewater Management

Severn Trent Plc collects, treats, and disposes of wastewater from households and businesses, protecting the environment and public health.

Water Recycling

Severn Trent Plc treats and recycles wastewater, producing high-quality water for non-potable uses such as irrigation and toilet flushing.

Sludge Treatment

Severn Trent Plc treats and processes sludge, a by-product of wastewater treatment, to produce a nutrient-rich fertilizer and energy source.

Water Efficiency Services

Severn Trent Plc provides water-saving solutions and advice to help households and businesses reduce their water consumption.

Water Quality Monitoring

Severn Trent Plc monitors and maintains water quality, ensuring compliance with regulatory standards and protecting public health.

8. Severn Trent Plc's Porter Forces

Forces Ranking

Threat Of Substitutes

The threat of substitutes for Severn Trent Plc is medium due to the presence of alternative water suppliers and treatment technologies.

Bargaining Power Of Customers

The bargaining power of customers is low due to the lack of alternative water suppliers and the essential nature of water services.

Bargaining Power Of Suppliers

The bargaining power of suppliers is medium due to the presence of multiple suppliers of materials and services, but the company's large scale of operations gives it some negotiating power.

Threat Of New Entrants

The threat of new entrants is low due to the high barriers to entry, including the need for significant capital investment and regulatory approvals.

Intensity Of Rivalry

The intensity of rivalry is high due to the presence of several large water companies in the UK, leading to intense competition for customers and market share.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 81.84%
Debt Cost 5.87%
Equity Weight 18.16%
Equity Cost 5.87%
WACC 5.87%
Leverage 450.56%

11. Quality Control: Severn Trent Plc passed 2 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Stock-Card
Drax

A-Score: 6.7/10

Value: 8.8

Growth: 8.0

Quality: 5.3

Yield: 5.6

Momentum: 6.0

Volatility: 6.7

1-Year Total Return ->

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Italgas

A-Score: 6.7/10

Value: 4.6

Growth: 3.9

Quality: 4.9

Yield: 8.1

Momentum: 9.0

Volatility: 9.7

1-Year Total Return ->

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Terna RETE

A-Score: 6.4/10

Value: 4.2

Growth: 5.6

Quality: 5.1

Yield: 7.5

Momentum: 6.0

Volatility: 10.0

1-Year Total Return ->

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Essential Utilities

A-Score: 6.0/10

Value: 5.3

Growth: 5.6

Quality: 5.4

Yield: 6.0

Momentum: 4.0

Volatility: 10.0

1-Year Total Return ->

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Stock-Card
Severn Trent

A-Score: 5.2/10

Value: 3.3

Growth: 3.7

Quality: 3.2

Yield: 6.9

Momentum: 5.0

Volatility: 9.0

1-Year Total Return ->

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Stock-Card
Pennon

A-Score: 4.2/10

Value: 5.4

Growth: 2.2

Quality: 2.4

Yield: 9.4

Momentum: 1.0

Volatility: 5.0

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

27.69$

Current Price

27.69$

Potential

-0.00%

Expected Cash-Flows