Negative Points:
Profitability from Severn Trent's core water business is dependent on the group's ability to meet tough regulatory efficiency targets.
Bad debt as a consequence of the economic downturn is being closely monitored by the group.
Exceptional charges of £50.9 million were reported within the group’s full year results on 30 May that included operational costs of £34.4 million. Within this figure, costs arising from Severn Trent Water's programme to restructure and realign the business resulted in an exceptional charge of £11.5 million.
Positive Points:
On 28 June Severn Trent announced that it and Costain Group PLC had entered into a new Joint Venture to provide complete business water and wastewater management services to high volume commercial and industrial water users in the UK.
Operating costs are expected to rise year on year, due to the impact of inflation, a full year of operating private drains and sewer assets, and increases in quasi taxes. The utility said these would be offset by efficiency improvements.
Severn Trent is subject to occasional takeover speculation.
The group's defensive nature provides investor attraction when set against an uncertain economic backdrop.
In the present low interest rate environment, a progressive dividend policy currently yielding over 4% remains attractive.
