ii view: new Severn Trent CEO leads record spending spree

Ten-month trading update to 10 February

Chief executive James Jesic said:

“We have welcomed the Government's White Paper as a step in the right direction and look forward to further clarity on timing and implementation in the Transition Plan expected later this year."

• Our Services: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

ii round-up:

Under new head James Jesic and ahead of full-year results on 20 May, water company Severn Trent (LSE:SVT) said today that trading has matched management’s expectations. 

Financial, environmental and operational targets all remained on track over the 10-month trading period to February, with strong momentum having been established during the group’s first year of the new regulatory period to 2030.

Shares in the FTSE 100 company rose around 0.5% in UK trading having come into this latest news up by just over a tenth in 2025. That’s similar to fellow water company United Utilities Group Class A (LSE:UU.). The FTSE 100 index rose by just over a fifth last year. 

Severn supplies around two billion litres of clean drinking water a day to over eight million people across the Midlands and Wales.

Following record first-half investment of £769 million, Severn now expects full-year investment to be at the upper end of its previous £1.7-1.9 billion range and a possible new annual record. 

Targeted areas of investment include storm overflows, or sewer mechanisms made to release excess rainwater and sewage into the environment during heavy periods of rainfall to prevent flooding.

Outcome Delivery Incentives (ODI) for the year to late March - paid by the regulator for meeting or exceeding targets such as reducing leaks and pollution – continue to be forecast at £40 million or more. Severn had forecast ODI’s of £25 million earlier in the year. 

CEO James Jesic replaced Liv Garfield and Severn’s head for the last 11 years at the start of 2026. 

ii view:

Headquartered in Coventry, the group’s name comes from the two predecessor River Authorities which managed the catchment of the Severn and the Trent. The FTSE 100 company employs over 7,000 people, treating 2.8 billion litres of wastewater each day for around 4.6 million homes and businesses.

For investors, a strong regulator is due to be created following current government reforms, with regular industry negotiations a fact of life. The water industry’s accountability and impact on the environment cannot be forgotten. Changes made by the government to taxes and capital allowances can affect financial performance, while group net debt of just over £9 billion as of late September compares to a current stock market value of a similar amount.

• Where to invest in Q1 2026? Four experts have their say
• 10 hottest ISA shares, funds and trusts
• eyeQ: keep the bond market on your radar

On the upside, demand for water generally changes little no matter what the economic backdrop. A major investment plan to 2030 has been started and is expected to improve both environmental and financial performance. A share price-to-net asset value (NAV) below the three-year average may suggest improved value, while the water company’s regulatory links to inflation for items such as bills and revenues also includes its dividend payment. 

On balance, and despite ongoing risks and a share price not far off a record high, this is a quality business with a forecast dividend yield of around 4.2%. 

Positives: 

• Attractive dividend payment (not guaranteed)
• Defensive qualities 

Negatives:

• Extremes of weather can hinder performance
• Regulatory constraints

The average rating of stock market analysts:

Strong hold