Severn Trent shares rise on strong H1 results, capex boost

Investing.com — Shares of Severn Trent  (LON:SVT) rose on Wednesday following the release of its first-half financial results for the 2024/25 fiscal year, which showcased strong revenue growth, improved profitability, and revised capital expenditure guidance. 

At 4:43 am (0943 GMT), Severn Trent was trading 3.4% higher at £2,781.

Analysts at Jefferies described the performance as a “small positive,” citing the company’s ability to deliver consistent earnings growth and investment acceleration.

The utility company reported revenues of £1.2 billion for the first half, reflecting a 4% year-on-year increase. 

Underlying profit before interest and tax surged by 17% to £298 million, driven primarily by the regulated business segment, which saw a 21% rise in profits to £295 million. 

Adjusted earnings per share climbed to 47.2p, compared to 20.5p during the same period last year.

Severn Trent also declared an interim dividend of 48.68p per share, maintaining its policy of annual increases aligned with the Consumer Prices Index including owner occupiers’ housing costs.

Net debt rose to £7.7 billion, up by about £480 million from the full-year 2023/24 figure of £7.2 billion, reflecting the company’s robust investment in infrastructure. 

Capital expenditure for the first half reached £666 million, representing a 40% year-on-year increase. 

The rise in spending was attributed to accelerated investments under the upcoming AMP8 regulatory cycle, which aims to enhance long-term resilience and performance.

Severn Trent has now revised its capex guidance for the full year, projecting spending at the top end of its £1.3 billion to £1.5 billion range. 

This marks a notable commitment to infrastructure development amid regulatory demands. 

Lower finance costs, also mentioned in the updated guidance, offer additional support to earnings stability for the year.

Jefferies analysts noted the company’s delivery on key targets, particularly its £420 million cumulative rewards under AMP7, which implies a nominal return on regulated equity (RoRE) exceeding 13%. 

This, coupled with Severn Trent’s ability to maintain stable dividends and align its spending with strategic goals, bolstered investor confidence.

“We are concerned that we see minimal movement from Ofwat and our bearish stance may be one factor that crystallises a better outcome, although there could be a CMA referral if companies feel the regulatory challenge is too tough,” said analysts at Barclays (LON:BARC) in a note.