Severn Trent shares rise with financial performance ‘on track’

Severn Trent shares hit the highest levels since 2023 after releasing a trading update for the period to 10 July 2024, highlighting robust financial performance and strategic investments.

The company reports that its financial performance for the year remains on track, and it expects to deliver in line with guidance.

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Severn Trent share price were 2.77% higher at the time of writing.

A key highlight is the anticipated net Outcome Delivery Incentive (ODI) reward of over £100 million pre-customer-sharing in 17/18 prices for the current year. This performance is set to bring the total net ODI reward for the Asset Management Period 7 (AMP7) to approximately £420 million in nominal prices, reflecting consistent performance for customers.

In terms of capital investment, Severn Trent has already deployed over £300 million in the first quarter of the year. The company maintains its guidance of £1.3 billion to £1.5 billion for the full year, positioning itself strongly for a successful capital investment programme through AMP8.

The company’s Green Power business is set to expand significantly. Following a deal with international solar company Elgin Energy, Severn Trent plans to invest around £100 million in constructing three large-scale solar farms. This investment is expected to increase the company’s energy generation by approximately 150GWh per year, demonstrating a commitment to sustainable practices and potentially reducing operational costs in the long term.

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Severn Trent has reported another strong start to the year and remains on track to meet guidance forecasts. However, there are some potential problems for the company bubbling beneath the surface,” said Mark Crouch, analyst at investment platform eToro.

“A distinct lack of investment in the country’s water infrastructure has almost become a throwaway line in recent years, with water companies accused of prioritising profits over safety and quality while running something of a monopoly, given the lack of competition. 

“Severn Trent was responsible for thousands of sewage spills in 2023, with spills increasing more than 30%. To the company’s credit, they have invested significantly into improving their network, however their target of halving spills by 2030 looks at this stage ambitious at best. 

“Severn Trent had proposed a 50% rise in bills over the next five years, however the UK’s water regulator Ofwat has restricted that number to 21%. Calls for the new Labour government to nationalise the water companies are getting louder. And while that prospect seems unlikely, it will hopefully act as a potent incentive for firms to clean up their act.”

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