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On Monday, CFRA maintained its Hold rating on Severn Trent Plc (LON:SVT:LN) (OTC: SVTRF), while adjusting the water company’s target price downward to £25 from £29. The revised target price signifies a 14.8% premium over the forecasted regulatory capital value (RCV) of £13.6 billion for the fiscal year 2025. According to InvestingPro data, the stock is currently trading near its 52-week low and appears fairly valued based on proprietary Fair Value calculations.
The firm’s trading update indicated that Severn Trent is on course with its financial performance, as it anticipates a net outcome delivery incentives reward surpassing £100 million before customer-sharing, based on fiscal year 2017/18 prices. The company has laid out plans for total expenditures amounting to £14.9 billion for the period between 2025 and 2030. This level of investment is expected to yield a real RCV growth of 45%, which exceeds the initial projections of CFRA. InvestingPro analysis shows the company maintains strong liquidity with a current ratio of 2.38, though it operates with significant debt levels.
Despite the implementation of stricter regulations by Ofwat, the UK’s water services regulation authority, which will cap average bill increases to 21% over the next five years, Severn Trent’s substantial Asset Management Plan 8 (AMP8) investments are believed to enable the company to sustain a sector-leading return on regulatory equity through to 2030.
The forecast for Severn Trent’s fiscal year 2025 dividend stands at £1.26 per share, with the assumption that dividend growth during AMP8 will align with the Consumer Prices Index including owner occupiers’ housing costs (CPIH).
In summary, CFRA’s analysis indicates that Severn Trent’s robust financing and operational performance, which continues to outpace regulatory benchmarks, supports the firm’s decision to maintain its Hold rating despite the reduced target price.
In other recent news, Severn Trent Plc has been the subject of various analyst updates, reflecting differing perspectives on its financial outlook. Kepler Cheuvreux upgraded Severn Trent’s stock rating from Hold to Buy, citing the company’s strong performance in the UK water utilities sector and a robust investment plan. The analysts increased the price target to GBP30.00, highlighting the company’s projected 9% compound annual growth rate in regulatory capital value over the next five years. Similarly, Bernstein SocGen Group upgraded Severn Trent from Market Perform to Outperform, raising the price target to GBP30.50 due to anticipated earnings growth from higher-than-expected allowed revenues in the fiscal years 2026 to 2030. This outlook suggests Severn Trent could potentially become the fastest-growing UK water utility during the Asset Management Plan 8 period.
Conversely, UBS maintained a Sell rating on Severn Trent, with a price target of GBP23.90, suggesting limited upside at the current valuation. UBS acknowledged the company’s consistent achievements but noted that the stock price already reflects these positives, trading at a premium to its March 2026 Regulatory Asset Base. UBS also raised its earnings per share estimates for 2026 to 2028 by 49-20%, attributing this to higher regulated capital value run-off rates and other factors. However, the analyst indicated that this increase in EPS does not necessarily translate to added value for investors. These differing analyst perspectives underscore the complexity of Severn Trent’s current market positioning and future growth potential.
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