Sneak Peek Of Two FTSE 350 Water Industry Stocks: Pennon Group Plc, Severn Trent Plc

  • Sep 20, 2019 BST
  • Team Kalkine
Sneak Peek Of Two FTSE 350 Water Industry Stocks: Pennon Group Plc, Severn Trent Plc
Pennon Group Plc

Pennon Group Plc (PNN) is an Exeter, United Kingdom-headquartered environmental utility infrastructure company which is one of the largest environmental infrastructure groups in the UK. South West Water Limited and Viridor Limited are the two subsidiaries of the company. It has a workforce of around 5,000 people and assets of around GBP 6.5 billion. The group is one of the largest constituents of the FTSE 100 index. The operations of the groups are differentiated in three operating divisions: Water and wastewater services, Waste Management, and Non-household retail business.

PNN-Financial Highlights for FY 2019

Augmented by an increased number of connections, an increase of 1.0 per cent in net tariff and a rise of 1.4 per cent in customer demand due to a hot and dry weather over the summer, revenues for South West Water increased by 1.7 per cent (GBP 9.7 million) to GBP 581.0 million during the FY19. Due to the ERF build-out and IFRIC 12 construction revenue, revenues for Viridor increased by 8.5 per cent (GBP 67.0 million) to GBP 852.7 million. This helped the company in posting revenue growth of 6.1 per cent to GBP 1,478.2 million (FY18: GBP 1,393.0 million). 

Operating profit rose over the year by 8.4 per cent to GBP 351.0 million from GBP 323.9 million, while adjusted EBITDA and group EBITDA were ahead of last year by 5.4 per cent at GBP 592.7 million (FY 2018: GBP 562.3 million) and 7.2 per cent at GBP 546.2 million (FY 2018: GBP 509.6 million) respectively. Focus on cost efficiencies and strong performance across the Water and Waste operations due to increased customer demand over the summer, along with the build-out and performance of the Energy Recovery Facilities, which supported the growth of EBITDA of 19.1 per cent at Viridor and helped the company to post strong EBITDA growth in FY2019. Reflecting a non-underlying charge before tax of GBP 19.9 million, on a statutory basis, profit before tax was GBP 260.3 million (FY 2018 GBP 262.9 million) while underlying profit before tax was GBP 280.2 million, an increase of 8.3 per cent (FY 2018 GBP 258.8 million). 

Statutory profit after tax was GBP 222.6 million, reflecting a growth of 0.3 per cent over GBP 221.9 million reported last year, and corresponding to statutory earnings per share of 51.1 pence (FY2018: 48.0 pence), an increase of 6.5 per cent due to efficient hybrid financing. Underlying earnings per share rose by 13.6 per cent to 57.8 pence (FY 2018: 50.9 pence). The company recommended a final dividend of 28.22 pence, which resulted in a total dividend of 41.06 pence after paying an interim dividend of 12.84 pence and reflected an increase of 6.4 per cent over the prior year. The operational cash inflows during the year were GBP 649 million (FY2018: GBP 672 million), and it had GBP 1,170 million worth of cash and committed facilities as at 31 March 2019, indicating a strong liquidity and funding position. The net debt during the year rose by GBP 278 million to GBP 3,080 million.

The group has significant headroom for investment and is confident of delivering sustainable, long-term returns from waste and water, and continues to seek and identify further growth opportunities within the UK by achieving an appropriate risk/reward balance.

The company aims to become a leader in the UK water and waste infrastructure and seeks to attain leadership in cost base efficiency through ongoing initiatives to reduce the cost base. The company was ranked 2nd out of all water and wastewater companies for the quality of service, reflecting the focus of the company on delivering sector-leading customer experience. The 2020-25 business plan by the company received fast-track status from Ofwat for the second consecutive review, and this will allow the company to plan and provide early attainment of service to its customers.

PNN-Share price performance

Daily Chart as on 20-September-19, before the market closed (Source: Thomson Reuters)

On 20th September 2019, while writing at 08:57 AM GMT, Pennon Group PLC shares were clocking a current market price of GBX 788.6 per share; which was more by 0.94 per cent in comparison to the last traded price of the previous day. The company’s market capitalisation was at £3.27 billion at the time of writing.

On 20th February 2019, the shares of PNN have touched a new peak of GBX 800 and reached the lowest price level of GBX 679.48 on 28th December 2018 in the last 52 weeks. The company’s shares were trading at 1.42 per cent lower from the 52-week high price mark and 16.05 per cent higher than the 52-week low price mark at the current trading level as can be seen in the price chart.

The stock’s traded volume was hovering around 72,178 at the time of writing before the market close. The company’s 5-day stock's average traded volume was 881,985.00; 30 days average traded volume- 946,788.40 and 90 days average traded volume – 1,013,715.61. The volatility of the company’s stock was 39 per cent lower as compared with the index taken as the benchmark, as the beta of the company’s stock was recorded at 0.61 with a dividend yield of 5.26 per cent.

The shares of the company have delivered a positive return of 2.28 per cent in the last quarter. The company’s stock surged by 12.76 per cent from the start of the year to till date. The company’s stock has given investors 9.53 per cent of a positive return in the last year. 

Severn Trent Plc

Severn Trent Plc (SVT) is amongst the 10 largest water and sewerage regulated companies in England and Wales. The company is focused on providing high-quality services to over 4.3 million customers, both for business and households. Severn Trent Plc was incorporated in the year 1989 and was headquartered at Coventry, the United Kingdom. The company acquired Capital Controls Company in 1990 and started building its products and services business in the US as well.

SVT-Trading Update

The company’s financial performance remained on track in the first three months of the fiscal year with no change in the business performance and outlook for the period. The company remained on track for delivery of ODI outperformance payments of £25 million to customers. The company has generated renewable energy of 123Gwh, which is equal to 52 per cent of the company’s energy need. The company had stored 10 per cent more of raw water in the current period versus the last year data.

SVT-Financial Highlights for FY19

For the Financial year ending 31st March 2019, the company’s reported turnover was £1,767.4 million as against £1,696.4 million for FY2018. There pencilled into an increase of 4.2 per cent due to an increase in revenue from Regulated Water and Wastewater and Business Services segment for the current period. Profit before interest and tax surged by 6.85 per cent to £563.3 million as compared to FY2018 data. The Profit before taxation was £384.7 million for FY2019 against £301.2 million for FY2018. There was an increase of 27.72 per cent mainly because of lower interest rate and reduced RPI inflation on company’s index-linked debt. The profit for the period (continuing & discontinued operations) stood at £315.3 million for FY2019 as compared to £252.8 million for FY2018. The company’s Basic Earnings per share (continuing & discontinued operations) was 133.4 pence for FY2019 against 107.4 pence in FY2018. The company’s Diluted Earnings per share (continuing & discontinued operations) was 133.2 pence for FY2019 against 107.1 pence in FY2018.

The company had shown decent financial performance for the current period. There had been a growth in the Top-line and Bottom-line performance. The company’s Regulated Water and Wastewater had delivered good performance despite additional operating costs of £22 million due to hot, dry summer.

The company operates in a complex regulatory environment and has submitted its future plans for 2020 to 2025 to The Water Services Regulation Authority (OFWAT), but the company though it is not clear about its outlook till Dec-19.

The company’s supply chain will be affected by the ongoing uncertainty created by the Brexit. The company’s financial performance also gets affected by the fluctuations created due to exchange rate and interest rate.

SVT-Share price performance

Daily Chart as on 20-September-19, before the market closed (Source: Thomson Reuters)

On 20th September 2019, while writing at 09:02 AM GMT, Severn Trent Plc shares were clocking a current market price of GBX 2,102 per share; which was more by 0.71 per cent in comparison to the last traded price of the previous day. The company’s market capitalisation was at £5.02 billion at the time of writing.

On 3rd July 2019, the shares of SVT have touched a new peak of GBX 2,153 and reached the lowest price level of GBX 1,757.01 on 28th December 2018 in the last 52 weeks. The company’s shares were trading at 2.36 per cent lower from the 52-week high price mark and 19.63 per cent higher than the 52-week low price mark at the current trading level as can be seen in the price chart.

The stock’s traded volume was hovering around 35,278 at the time of writing before the market close. The company’s 5-day stock's average traded volume was 818,504.80; 30 days average traded volume- 625,989.43 and 90 days average traded volume – 825,694.93. The volatility of the company’s stock was 29 per cent lower as compared with the index taken as the benchmark, as the beta of the company’s stock was recorded at 0.71 with a dividend yield of 4.47 per cent.

The shares of the company have delivered a positive return of 0.19 per cent in the last quarter. The company’s stock surged by 14.95 per cent from the start of the year to till date. The company’s stock has given investors 12.99 per cent of a positive return in the last year. 

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