UK Utilities Sector – Adapting to Renewable Energy Shifts and Evolving Consumer Demands

This report is an updated version of the report published on 25 June 2025 at 08:11 AM GMT+1.

Section 1.0. UK Utilities Sector Landscape, Trends & SWOT Analysis

The United Kingdom’s utilities sector comprises water, electricity, and gas markets. Dividend focused investors get shelter in the utility sector usually since they have predictable cash flows, and the business model is non-cyclical in nature. In the UK, the regulator Ofgem (The Office of Gas and Electricity Markets) controls energy prices in the form of a price cap. It has been witnessed that the energy prices have shot up due to the increased consumption after Covid-19 pandemic led restrictions and ongoing war in Ukraine.

Kalkine’s Utilities Sector Report covers the Investment Summary, Sector Landscape, Trends & SWOT Analysis, Risks, Recent Business Updates along with the Valuation, Target Price, and Recommendation on the stock.

Section 2.0. Sector Risks & Opportunities

The UK utilities sector is undergoing significant transformation as it adapts to the growing emphasis on renewable energy and changing consumer expectations. Companies are investing in cleaner energy sources, such as wind and solar, while also enhancing digital services to meet demand for greater transparency, flexibility, and sustainability. This dual shift is reshaping traditional utility models and driving innovation across the industry.

After gaining insights into the Utilities sector, we will look at the business model of two relevant players listed on the London Stock Exchange.

Section1: Company Overview

Severn Trent PLC (LSE: SVT), a FTSE 100 listed company and United Kingdom-based holding company of Severn Trent Water Limited (STWL) and the ultimate holding company of Severn Trent Utilities Finance Plc (STUF). The Company provides water and wastewater services. The Company operates through two divisions: Regulated Water and Wastewater, and Severn Trent Business Services. Regulated Water and Wastewater division includes the wholesale water and wastewater activities of the Company’s regulated businesses, STWL and Hafren Dyfrdwy and its retail services to domestic customers.

Section2:  Financial Highlights – FY25

Section 3:  Stock Recommendation Summary

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative):

The stock has witnessed an upside of ~0.77% and of ~10.54% over the 1 week and 3 months respectively. It is trading above the average of 52-week high price of GBX 2,807.00 and 52-week low price of GBX 2,323.00, providing an opportunity to ride the trend.

One-Year Technical Price Chart (as of June 24, 2025). Source: REFINITIV, Analysis: Kalkine Group

Section4: Company Overview

Drax Group PLC (LSE: DRX) is a UK-based renewable energy company and a constituent of the FTSE 250 index. The company specializes in renewable power generation, sustainable biomass production, and supplying businesses with renewable electricity. Its operations are structured into three core segments: Pellet Production, which manufactures and sells biomass pellets from its North American facilities; Generation, focused on renewable power generation; and Customers, which delivers renewable energy solutions to commercial clients.

Section5:  Financial Highlights – FY24

Section 6:  Stock Recommendation Summary

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative):

The stock has witnessed an upside of ~2.20% and of ~13.95% over the 1 week and 3 months respectively. It is trading above the average of 52-week high price of GBX 692.00 and 52-week low price of GBX 485.00, providing an opportunity to ride the trend.

One-Year Technical Price Chart (as of June 24, 2025). Source: REFINITIV, Analysis: Kalkine Group

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance level is 24 June 2025. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and/ or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Note 6: Dividend Yield may vary as per the stock price movement.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.