ii view: Severn Trent now tipped to make even bigger profits

Full-year results to 31 March

• Revenue up 16.6% to £2.83 billion
• Adjusted profits up 46% to £861 million
• Adjusted earnings per share up 65% to 184.4p per share
• Final dividend of 75.62p per share
• Total dividend for the year up 3.5% to 126.02p per share
• Adjusted net debt up 18% to £10.05 billion

Chief executive James Jesic said:

"Our unique strength of internal capabilities coupled with strong supply chain relationships have enabled acceleration of investment delivery and growth in our water and wastewater infrastructure.

"We continue to deliver meaningful outcomes for over 9 million people, while maintaining exceptional water quality standards and enabling economic growth in our region."

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ii round-up:

Water company Severn Trent today detailed earnings that beat City forecasts, aided by management momentum driving operational efficiencies.

Outcome Delivery Incentives (ODI) for the full year to late March - money paid by the regulator to water companies for meeting or exceeding targets like reducing leaks and pollution – was £59 million, ahead of the "over £40 million" estimated by Severn previously.

Adjusted earnings up 65% year-over-year to 184.4p per share topped analyst estimates of 177p. A final dividend of 75.62p per share, payable to eligible shareholders on 15 July, takes the total payment for the year up 3.5% to 126.02p per share.

Shares in the FTSE 100 company rose 3% having come into these latest results up by close to a tenth so far in 2026. That’s similar to fellow water company United Utilities Group  Class A. The FTSE 100 index is up by almost 4% year-to-date.

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

Pollution fell 35% from the previous year, leakages by 8% and sewer floodings by 12%. Management said AI helped.

Investment of £1.95 billion over the year climbed from £1.67 billion in the previous year with investment for the year ahead expected to come in at between £2.2 billion and £2.5 billion.

Severn’s adjusted net debt climbed 18% to £10.05 billion, helping push net financing costs up 24% to £302 million.  

Ongoing efficiencies and ODIs are now expected to drive 2028 annual adjusted earnings of around 250p per share, up from management’s previous estimate of at least 224p per share.

The group’s AGM is scheduled for 9 July.

ii view:

Headquartered in Coventry, the company’s name comes from the two predecessor River Authorities which managed the catchment of the Severn and the Trent. Employing around 7,000 people, the blue-chip company also treats around 3.2 billion litres of water every day.

For investors, a transitioned and 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 overlooked. Changes made by the government to taxes and capital allowances can impact financial performance, while group adjusted net debt of around £10 billion compares to a stock market value closer to £9 billion.

• High-yielding shares beyond the FTSE 100 that the pros are backing
• Where value investors are now hunting for opportunities
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To the upside, demand for water generally changes little no matter what the economic backdrop. A major investment plan 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 revenue also include its dividend payment.

In all, and despite continuing risks, a forecast dividend yield of over 4% will keep income investors happy, while an impressive long-term trend of capital appreciation will be attractive to others.

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