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Severn Trent

LSE:SVT
Snowflake Description

Solid track record average dividend payer.

The Snowflake is generated from 30 checks in 5 different areas, read more below.
SVT
LSE
£5B
Market Cap
Water Utilities
Company description

Severn Trent Plc operates as a water and sewerage company in the United Kingdom, the United States, and internationally. More info.


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3 Month History
SVT
Industry
5yr Volatility vs Market

Value

 Is Severn Trent undervalued based on future cash flows and its price relative to the stock market?

Value is all about what a company is worth versus what price it is available for. If you went into a grocery store and all the bananas were on sale at half price, they could be considered undervalued.
INTRINSIC VALUE BASED ON FUTURE CASH FLOWS
Here we compare the current share price of Severn Trent to its discounted cash flow value.

The discounted cash flow value is simply looking at what the company is worth today, based on estimates of how much money it is expected to make in the future.

How is this discounted cash flow calculated?

  • The current share price of Severn Trent is above its future cash flow value.
Often investors are willing to pay a premium for a company that has a high dividend or the potential for future growth.
PRICE RELATIVE TO MARKET
We can also value a company based on what the stock market is willing to pay for it. This is similar to the price of fruit (e.g. Mangoes or Avacados) increasing when they are out of season, or how much your home is worth.

The amount the stock market is willing to pay for Severn Trent's earnings, growth and assets is considered below, and whether this is a fair price.
Price based on past earnings
Are Severn Trent's earnings available for a low price, and how does this compare to other companies in the same industry?
  • Good value based on earnings compared to the Utilities industry average.
  • Good value based on earnings compared to the overall market.
Price based on expected Growth
Does Severn Trent's expected growth come at a high price?
  • No forecast or negative expected growth next year.
Price based on value of assets
What value do investors place on Severn Trent's assets?
  • Overvalued based on assets compared to the Utilities industry average.
X
Value checks
We assess Severn Trent's value by looking at:
  1. Is the discounted cash flow value less than 20%, or 40% of the share price? (2 checks) (Click here or on bar chart for details of DCF calculation.)
  2. Is the PE ratio less than the market average, and/ or less than the Utilities industry average (and greater than 0)? (2 checks)
  3. Is the PEG ratio within a reasonable range (0 to 1)? (1 check)
  4. Is the PB ratio less than the Utilities industry average (and greater than 0)? (1 check)
  5. Severn Trent has a total score of 2/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations including PE and PEG Ratio.
    Note 2: PEG ratio is based on analysts EPS growth expectations in 1 year (-19.28%).

    Full details on the Value part of the Simply Wall St company analysis model.
X
Discounted cash flow (Free cash flow to Equity)

The calculations below outline how an intrinsic value for Severn Trent is arrived at by discounting future cash flows to their present value. We use analyst's estimates of cash flows going forward 5 years.

See our documentation to learn about this calculation.

5 year cash flow forecast

Present value of next 5 years cash flows:
£485

Terminal Value

Terminal Value = FCF2021 × (1 + g) ÷ (Discount Rate – g)

Terminal Value = £67 × (1 + 1.2%) ÷ (8.23% – 1.2%)

Terminal value based on the Perpetuity Method where growth (g) = 1.2%:
£955

Present value of terminal value:
£643

Equity Value

Equity Value (Total value) = Present value of next 5 years cash flows + terminal value

Value = Total value / Shares Outstanding (£1,128 / 240)

Value per share:
£4.69

Current discount (share price of £21.69): -362%



Estimate of Discount Rate

The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.

Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)

Discount rate = 8.23% = 1.17% + (0.8 * 8.83%)



Estimate of Bottom Up Beta

The Levered Beta is the Unlevered Beta adjusted for financial leverage. It is limited to 0.8 to 2.0 (practical range for a stable firm).

Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))

0.573 = 0.318 (1 + (1- 21%) (101.6%))

Levered Beta used in calculation = 0.8



Assumptions
  1. The risk free rate of 1.17% is from the 10 year government bond rate in GB.
  2. The bottom-up beta is estimated by analysing other companies in the same industry.
  3. The Equity Risk Premium is calculated by subtracting the risk free rate from the market return premium (10%) (source: Buffet).
  4. The dividend discount model is automatically used for companies in the following industries: Banks, Insurance, Real Estate Investment Trusts (REITs), Diversified Financial Services and Capital Markets.

Future Performance

 How is Severn Trent expected to perform in the next 1 to 3 years based on estimates from 11 analysts?

    The future performance of a company is measured in the same way as past performance, by looking at estimated growth and how much profit it is expected to make.

    Future estimates come from professional analysts. Just like forecasting the weather, they don’t always get it right!
    3 year growth
    -4%
    Expected earnings growth over 3 years.
    Future Earnings growth analysis
    Is Severn Trent expected to grow at an attractive rate? We look at the 1 year and 3 year growth below.

    Are Severn Trent's annual earnings growth expected to exceed 1.8% over the next 3 years?

    • Earnings are expected to decrease over the next year.
    • Earnings are expected to decrease over the next 3 years.
    1 & 3 year estimated growth in earnings
    Past and Future Earnings per Share
    The accuracy of the analysts who estimate the future performance data can be gauged below. We look back 3 years and see if they were any good at predicting what actually occured. We also show the highest and lowest estimates looking forward to see if there is a wide range.
    Analysts growth expectations
    2 year growth check
    Super high growth metrics x1.5?

    Which of the these is expected to increase by over 50% in 2 year's time?

    • Revenue
    • Cash flow
    • Profit
    Performance in 3 years
    In the same way as past performance we look at the future estimated return (profit) compared to the available funds. We do this looking forward 3 years.
    • Severn Trent is expected to perform strongly, Return on Equity (ROE) in 3 years is estimated to be above 20%.

    Improvement & Relative to industry
    • Expected to be above the Utilities industry average.
    • A decline in Severn Trent's performance (ROE) is expected over the next 3 years.
    X
    Future performance checks
    We assess Severn Trent's future performance by looking at:
    1. Is the growth in earnings expected to beat the low risk savings rate, plus a premium to keep pace with inflation, in 1 year and 3 years? (2 checks)
    2. Does the average analyst expect Revenue to increase by 50% or more in 2 years? (1 check)
    3. Does the average analyst expect Operating Cash Flow to increase by 50% or more in 2 years? (1 check)
    4. Does the average analyst expect Net Income (Profit) to increase by 50% or more in 2 years? (1 check)
    5. Is the Return on Equity in 3 years expected to be over 20%? (1 check)
    Some of the above checks will fail if the company is expected to be loss making in the relevant year.
    Severn Trent has a total score of 1/6, see the detailed checks below.

    Note: If no +3 year data is available, +2.5 year data may be used.

    Note 2: We use GAAP per Share in all our calculations.

    Full details on the Future part of the Simply Wall St company analysis model.

    Past Performance

     How has Severn Trent performed over the past 5 years?

    The past performance of a company can be measured by how much growth it has experienced and how much profit it makes relative to the funds and assets it has available.
    Past earnings growth
    Below we compare Severn Trent's growth in the last year to its industry (Utilities).
    Past Earnings growth analysis
    We also check if the company has grown in the past 5 years, and whether it has maintained that growth in the year.
    • Severn Trent's earnings growth has not matched the industry average in the past year.
    • Severn Trent's 1 year earnings growth exceeds its 5 year annual average (4.9% vs 4.9%).
    • Severn Trent has improved earnings in the past 5 years.
    Profit History
    Severn Trent's revenue and profit over the past 5 years is shown below, any years where they have experienced a loss will show up in red.
    Performance last year
    We want to ensure a company is making the most of what it has available. This is done by comparing the return (profit) to a company's available funds, assets and capital.
    • Strong return on shareholders funds (ROE) last year.
    • Severn Trent performed above the Utilities industry average based on return on assets (ROA) last year.
    • Performance based on revenue producing assets (ROCE) is broadly the same over 3 years.
    X
    Past performance checks
    We assess Severn Trent's performance over the past 5 years by checking for:
    1. Has earnings per share (EPS) increased in past 5 years? (1 check)
    2. Has the EPS growth in the last year exceeded that of the Utilities industry? (1 check)
    3. Is the current EPS growth higher than the average annual growth over the past 5 years? (1 check)
    4. Is the Return on Equity (ROE) higher than 20%? (1 check)
    5. Is the Return on Assets (ROA) above industry average? (1 check)
    6. Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
    The above checks will fail if the company has reported a loss in the most recent earnings report. Some checks require at least 3 or 5 years worth of data.
    Severn Trent has a total score of 5/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations.

    Full details on the Past part of the Simply Wall St company analysis model.

    Health

     How is Severn Trent's financial health and their level of debt?

    A company's financial position is much like your own financial position, it includes everything you own (assets) and owe (liabilities).

    The boxes below represent the relative size of what makes up Severn Trent's finances.

    The net worth of a company is the difference between its assets and liabilities.
    Net Worth
    • Severn Trent short term (1 year) commitments are greater than its holdings of cash and other short term assets.
    • Severn Trent's long term commitments exceed its cash and other short term assets.
    Balance sheet
    This treemap shows a more detailed breakdown of Severn Trent's finances. If any of them are yellow this indicates they may be out of proportion and red means they relate to one of the checks below.
    Assets
    Liabilities and shares
    The 'shares' portion represents any funds contributed by the owners (shareholders) and any profits.
    • High level of stock/ inventory/ unsold assets.
    • Total debt is not covered by total short term assets.
    Historical Debt
    Nearly all companies have debt. Debt in itself isn’t bad, however if the debt is too high, or the company can’t afford to pay the interest on its debts this may have impacts in the future.

    The graphic below shows equity (available funds) and debt, we ideally want to see the red area (debt) decreasing.

    If there is any debt we look at the companies capability to repay it, and whether the level has increased over the past 5 years.
    • The level of debt (574%) compared to net worth is high (greater 40%).
    • The level of debt compared to net worth has increased over the past 5 years (477% vs 574% today).
    • Total debt is not well covered by annual operating cash flow (less than 20% of total debt).
    • Interest on debt is not strongly covered (ideally 3x) by earnings (EBIT is 2.6x annual interest expense).
    X
    Financial health checks
    We assess Severn Trent's financial health by checking for:
    1. Are short term assets greater than short term liabilities? (1 check)
    2. Are short term assets greater than long term liabilities? (1 check)
    3. Has the debt to equity ratio increased in the past 5 years? (1 check)
    4. Is the debt to equity ratio over 40%? (1 check)
    5. Is the debt covered by short term assets? (1 check)
    6. Are earnings greater than 5x the interest on debt (if comapany pays interest at all)? (1 check)
    7. Severn Trent has a total score of 0/6, see the detailed checks below.


    Full details on the Health part of the Simply Wall St company analysis model.

    Dividends

     What is Severn Trent's current dividend yield, its reliability and sustainability?

    Dividends are regular cash payments to you from the company, similar to a bank paying you interest on a savings account.
    Annual Dividend Income
    Dividend payments
    3.67%
    Current annual income from Severn Trent dividends. Estimated to be 4.29% next year.
    If you bought £2,000 of Severn Trent shares you are expected to receive £73 in your first year as a dividend.
    Dividend Amount
    Here we look how much dividend is being paid, if any. Is it above what you can get in a savings account? It is up there with the best dividend paying companies?
    • Paying above low risk savings rate. (2.3%)
    • Paying below the markets top dividend payers. (3.98%)
    Historical dividend yield
    It is important to see if the dividend for a company is stable, and not wildly increasing/decreasing each year. This graph shows you the historical rate to count toward your assessment of the stock.

    We also check to see if the dividend has increased in the past 10 years.
    • Dividends per share have been volatile in the past 10 (annual drop of over 10%).
    • Dividends per share have increased over the past 10 years.
    Current Payout to shareholders
    What portion of Severn Trent's earnings are paid to the shareholders as a dividend.
    • Dividends paid are covered by net profit (1.8x coverage).
    Future Payout to shareholders
    • Dividends after 3 years are expected to be covered by net profit (1.4x coverage).
    X
    Income/ dividend checks
    We assess Severn Trent's dividend by checking for:
    1. Firstly is the company paying a notable dividend (greater than 0.5%) - if not then the rest of the checks are ignored.
    2. Current dividend yield, is there one at all, is it higher than the low risk savings rate, and is it above the top 25% of dividend payers? (2 checks)
    3. Have they paid a dividend for 10 years, and during this period has the dividend been volatile (drop of more than 25%)? (1 check)
    4. If they have paid a dividend for 10 years has it increased in this time? (1 check)
    5. How sustainable is the dividend, can Severn Trent afford to pay it from its earnings today and in 3 years (Payout ratio less than 90%)? (2 checks)
    6. Severn Trent has a total score of 4/6, see the detailed checks below.


    Full details on the Dividends part of the Simply Wall St company analysis model.

    Management

     What is the CEO of Severn Trent's salary, the management and board of directors tenure and is there insider trading?

    Management is one of the most important areas of a company. We look at unreasonable CEO compensation, how long the team and board of directors have been around for and insider trading.
    CEO
    Liv Garfield, image provided by Google.
    Liv Garfield
    COMPENSATION£2,450,700
    AGE41
    CEO Bio

    Ms. Olivia Garfield, also known as Liv, BA (Hons), has been the Chief Executive Officer of Severn Trent Plc and Severn Trent Water Ltd. since April 11, 2014. Ms. Garfield has been Executive Director of Severn Trent Plc since April 11, 2014. She served as the Chief Executive of Openreach at BT Group plc from April 1, 2011 to February 2014. Her task is to build on the foundations laid by Robertson. She carried out a range of senior strategic and operational roles, including Group Director Strategy, Portfolio and Regulation, Managing Director Commercial and Brands, Global Services and Vice President UK Customer Services, Global Services. Ms. Garfield served as Group Director of Strategy and Regulatory Affairs at BT Group plc. She oversaw BT Group's fibre broadband strategy and other key areas. She oversaw delivery of fibre to two thirds of UK homes and businesses. From 1998 to 2002, she served for Accenture as a consultant in the Communications and High Tech Market Unit, designing and implementing business change solutions across a number of industry sectors. She has been a Director of Dee Valley Group plc since February 2017 and Severn Trent Water Ltd. since April 11, 2014. She served as a Non Executive Director of Tesco PLC since April 1, 2013 until February 28, 2015. Ms. Garfield holds MA (Hons) degree from New Hall College, Cambridge.

    CEO Compensation
    • CEO's compensation has been consistent with company performance over the past year.
    • CEO's compensation appears reasonable.
    Management Team Tenure

    Average tenure of the Severn Trent management team:

    Management tenure
    2.5 years
    • The tenure for the Severn Trent management team is about average.
    Management Team

    Liv Garfield

    TITLE
    CEO & Executive Director
    COMPENSATION
    £2,450,700
    AGE
    41

    James Bowling

    TITLE
    CFO & Executive Director
    COMPENSATION
    £1,220,700
    AGE
    48

    Emma FitzGerald

    TITLE
    MD of Wholesale Operations & Executive Director
    COMPENSATION
    £1,206,200
    AGE
    50

    Ruban Chandran

    TITLE
    Head of Investor Relations

    Bronagh Kennedy

    TITLE
    General Counsel & Company Secretary
    AGE
    54

    Simon Harris

    TITLE
    Head of Communications
    Board of Directors Tenure

    Average tenure of the Severn Trent board of directors:

    Board tenure
    3.1 years
    • The tenure for the Severn Trent board of directors is about average.
    Board of Directors

    Andy Duff

    TITLE
    Non-Executive Chairman
    COMPENSATION
    £275,000
    AGE
    58

    Liv Garfield

    TITLE
    CEO & Executive Director
    COMPENSATION
    £2,450,700
    AGE
    41

    James Bowling

    TITLE
    CFO & Executive Director
    COMPENSATION
    £1,220,700
    AGE
    48

    Emma FitzGerald

    TITLE
    MD of Wholesale Operations & Executive Director
    COMPENSATION
    £1,206,200
    AGE
    50

    Angela Strank

    TITLE
    Independent Non-Executive Director
    COMPENSATION
    £61,500
    AGE
    64

    Philip Remnant

    TITLE
    Independent Non Executive Director
    COMPENSATION
    £67,400
    AGE
    62
    Recent Insider Trading
    Who owns this company?
    X
    Management checks
    We assess Severn Trent's management by checking for:
    1. Is the CEO's compensation unreasonable compared to market cap and profit (greater than 0.5% of the company's profit + 0.03% of market cap)? (1 check)
    2. Has the CEO's compensation increased more than 20% whilst the EPS is down more then 20%? (1 check)
    3. Is the average tenure of the management team less than 2 years? (1 check)
    4. Is the average tenure of the board of directors team less than 3 years? (1 check)
    5. Severn Trent has a total score of 6/6, this is not included on the snowflake, see the detailed checks below.


    Note: We use the top 6 management executives and board members in our calculations.

    Note 2: Insider trading include any internal stakeholders and these transactions.

    Full details on the Management part of the Simply Wall St company analysis model.

    Company News

    Company Info

    Description

    Severn Trent Plc operates as a water and sewerage company in the United Kingdom, the United States, and internationally. The company operates through two segments, Regulated Water and Waste Water, and Business Services. The Regulated Water and Waste Water segment provides water and sewerage services to approximately 4.5 million households and businesses in the Midlands and mid-Wales. The Business Services segment provides contract services to municipal and industrial clients in the UK and the UK Ministry of Defence for the design, build, and operation of water and waste water treatment facilities and networks. This segment also offers contract services to community, municipal, and industrial clients for the operation and maintenance of water and waste water treatment facilities and networks in the United States; and generates renewable energy from wind turbines, anaerobic digestion, hydropower, and solar technology. Severn Trent Plc was founded in 1974 and is headquartered in Coventry, the United Kingdom.

    Details
    Name:Severn Trent Plc
    Ticker:SVT
    Exchange:LSE
    Founded:1974
    Market Cap:£5,216 million
    Website:http://www.severntrent.com
    Listings
    Map

    Severn Trent Centre, Coventry, CV1 2LZ, United Kingdom

    Number of employees
    Street

    Current staff
    Staff numbers
    7,622
    Severn Trent employees.
    Industry
    Industry:Water Utilities
    Sector:Utilities