ii view: Severn Trent upgrades reward forecast and names new CEO

First-half results to 30 September

• Revenue up 18% to £1.44 billion
• Adjusted profits up 57% to £466 million
• Interim dividend up 3.5% to 50.4p per share
• Net debt up 7% from late March to £9.15 billion

Chief executive Liv Garfield said:

"The next five years will be a period of exceptional growth for Severn Trent. We're investing in people, technology, and new businesses to secure the capabilities we need for the future. 

“Backed by the financial strength of our group, we're accelerating growth in our asset base which flows through to earnings. We're confident we can deliver earnings growth and returns while investing even more for our customers, creating new jobs across our region and improving the environment for the communities we serve."

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ii round-up:

Severn Trent (LSE:SVT) has announced the departure of its chief executive of the last 11 years at the start of 2026, as the water company upgraded expected performance reward payments from the regulator over the year ahead.

Existing Severn executive James Jesic will replace Liv Garfield in early January. Front loaded investment over the next five years is now expected to see Outcome Delivery Incentives (ODI) - paid by the regulator for meeting or exceeding targets such as reducing leaks and pollution - of "at least £40 million". That’s up from a previously expected "at least £25 million".

Shares in the FTSE 100 company fell by close to 1% in UK trading having come into this latest news up by almost a tenth so far in 2025. That’s similar to fellow water company United Utilities Group Class A (LSE:UU.). The FTSE 100 index is up around 15% year-to-date. 

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

An almost one-fifth increase in revenue during the first half of its financial year to late September helped drive a 57% increase in adjusted profit to £466 million.  

A declared interim dividend of 50.40p per share, payable to eligible shareholders on 12 January, is up 3.5% from a year ago. 

Record investment of £769 million was made during the first half, with potential spend for the full year of up to £1.9 billion up £1.7 billion previously. 

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.

Broker Morgan Stanley reiterated its ‘overweight’ stance on Severn shares post the results, flagging a fair value price of 3,300p per share.  

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, the water industry’s accountability and impact on the environment cannot be forgotten. Adjustments to taxes and capital allowances can impact with a UK Budget pending. Regular negotiations with the industry regulator are a fact of life, while group net debt of just over £9 billion compares to a current stock market value of just over £8 billion.

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More favourably, demand for water generally changes little no matter what the economic backdrop. A major investment plan over the next five years is expected to improve both environmental and financial performance. A share price-to-net asset value (NAV) below the three-year average may suggest value here, while the company's regulatory links to inflation for items such as bills and revenues also include its dividend payment.

In all, and while risks are ongoing, a forecast dividend yield of around 4.6% 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