Shares in Severn Trent Water LON:SVT are rallying – sort of. They are up 6.39% over the last year and 8.03% in the past six months. It might look better if investors were not selling hard into any significant rally, however.
Basically it looks as if the market remains unconvinced about the future of the water sector in the UK, how it is going to be regulated in the future, and how the new Labour government will begin to exercise more government control over a scandal-plagued corner of the utilities sector.
Severn Trent Water really falls within the mean of the utilities sector. We have seen a relatively strong performance in terms of net change in cash but net capital expenditure came in weaker in its last set of numbers. Historically, the correlation between these mixed results and the likelihood of Severn Trent stock outperforming the market has been inconsistent, to say the least. We’re not expecting it to beat any industry benchmarks this year.
Severn Trent reported Q1 2024 revenues of £586.45m and net income of £44.3m, indicating a growth of 6.4% in revenue, in addition to a substantial 40.1% rise in EPS compared to the corresponding quarter of the previous year.
A positive note is that for the 14th consecutive quarter, the company’s income line has increased compared to last year’s corresponding quarter, which demonstrates Severn Trent’s stability and its ability to grow in the future.
In addition, the EBITDA margin moderate declined from 38.1% in the corresponding quarter last year to 36.1%. Another notable figure on the negative side of the Severn Trent balance sheet is the free cash flow for the quarter, which decreased from the previous year’s corresponding period.
In spite of no improvement in cash flow, Severn Trent’s management returned an impressive amount of cash to shareholders, of which £69.9m was paid as a dividend. It is important to note that the stock’s dividend yield stands at approximately 4.7%.
Severn Trent Water peers comparison
Source: Bridgewise
Severn Trent Water: Momentum Analysis
Trend Intelligence analysed the Severn Trent Water share price and found that the share price is above two of its moving averages, which are organised in a negative correlation (see chart below, at the top). Neutrally the price is trading within the Japanese Cloud Indicator, and the stock’s delay line is also within the cloud. The most recent Japanese Average Candle is green (trend is neutral).
The second chart is the D* Momentum Indicator. This remains positive as the bearish red line is below the Trent Intelligence bullish green +D* line (trend is positive).
The third chart is the R* Momentum Indicator. This and the white signal line are positive. The data points are trending down, but are above the zero line (trend is positive).
The final chart is the M* Momentum Indicator. This is also positive, with the fast red M* line above the white signal line. All three indicators are trending upwards.
Trend Intelligence says that its medium term outlook for Severn Trent Water is that the share price will exhibit a moderate positive trend in the weeks and months ahead. The price chart summary shows price action operating above two of the Trend Intelligence moving averages and within the Japanese Cloud. All of the Trend Intelligence momentum indicators are producing positive signals.
