ii view: Severn Trent confirms Q1 spending spree

AGM trading update from 1 April to 8 July

ii round-up:

Severn Trent (LSE:SVT) this week underlined the water company’s ongoing investment expenditure, with trading for the first quarter just as management expected.

Around £440 million was invested during the period from late March to early July, an increase of 22% year-over-year. Capital expenditure for the year to late March 2027 continues to be forecast at between £2.2 billion and £2.5 billion – an increase from £1.95 billion last year and £1.67 billion in 2024.

Shares in the FTSE 100 company remained little changed in post announcement UK trading having come into this latest news up by around 6% so far in 2026. The FTSE 100 index is up almost 5% year to date. Fellow water company United Utilities Group  Class A (LSE:UU.) is up 11%.

SVT supplies 4.6 million households and businesses across the Midlands and Wales with around two billion litres of clean drinking water every day.

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Management remains confident of delivering at least £50 million of total performance incentives during this financial year. That includes Outcome Delivery Incentives (ODI), paid by the regulator to water companies for meeting or exceeding targets such as reducing leaks and pollution.

ODI’s in 2025 totalled £59 million, exceeding management’s early year forecast of over £40 million.

In mid-June, Severn completed the refinancing of its core bank facilities, increasing the committed amount to £1.65 billion. That provides liquidity and underlines the strength of the group’s position in the debt financing according to management.

All 22 resolutions were passed at its AGM. The votes came a day after water regulator Ofwat concluded a wastewater investigation, where it acknowledged Severn’s proactive investments and imposed no financial penalties.

First-half results to late September are scheduled for 18 November.

ii view:

Headquartered in Coventry, the FTSE 100 company treats around 3.2 billion litres of water every day. Employing more than 10,000 people, management aims include becoming carbon zero, using only renewable power and operating an all-electric vehicle fleet by 2030.

For investors, a transitioned and strong regulator is being formed by the current government, with regular ongoing industry negotiations remaining a fact of life. The water industry’s accountability and impact on the environment cannot be overlooked. Group adjusted net debt of around £10 billion as of late March compares to a stock market value nearer to £9 billion, while changes made by governments to taxes and capital allowances can impact financial performance.

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More favourably, demand for water generally changes little no matter what the economic backdrop. A major investment programme to 2030 continues 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 include its dividend payment.

For now, and while risks remain, a forecast dividend yield above 4% should keep income investors interested.

Positives:

• Attractive dividend payment (not guaranteed)
• Defensive qualities

Negatives:

• Extremes of weather can hinder performance
• Regulatory constraints

The average rating of stock market analysts:

Hold