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.

On 21^st November 2019, Severn Trent will announce its H1 FY2020 results.

Recent News
On 30th October 2019, Severn Trent announced the selection of Christine Hodgson. Christine Hodgson will take up the position of Chair and in April 2020 will succeed Andrew Duff.

Financial Highlights – Financial Year 2019 (31^st March 2019, £, million)

(Source: Annual Report, Company Website)
 
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 was an increase of 4.2 per cent due to an increase in the 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.

Share Price Performance

Daily Chart as at 7^th November 2019, before the market closed (Source: Thomson Reuters)

On November 7^th, 2019, Severn Trent Plc shares were trading at GBX 2,201.00 at the time of writing before the market close (at 2:23 PM GMT), down by 1.78 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 2,338.00/GBX 1,757.01.

Valuation Methodology

*Peers: Telecom Plus Plc, United Utilities Group Plc, Pennon Group Plc, SSE Plc and Drax Group Plc.

Conclusion
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 have 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 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 is also affected by the fluctuations created due to exchange rate and interest rate. 

Considering the risks associated with the company’s operations and supported by valuation done using the above method, we believe that investors can “Avoid” the stock at the current price of GBX 2,249 (as on 7^th November 2019, before the market close at 8:00 AM GMT).
 

RHI Magnesita NV

RHI Magnesita NV (RHIM) is an Industrial Engineering company, providing reliable and innovative refractory products and services to its customers from the chemical, environment, energy, glass, non-ferrous metals, lime, cement and steel industries. The company makes more than 120,000 tailored products for its customers. The company presently owns 35 main production plants, 13 raw material facilities and ship products to over 100 countries globally.

Trading Update
On 24th October 2019, RHI Magnesita announced its trading update for Q3 ending 30th September 2019. The global steel market and global production both declined, which resulted in a reduction of inventories across the supply chain. The company’s benefits from cost-saving initiatives are offset by lower volumes sold and lower fixed cost recovery due to slow market environment. The company Industrial Division had shown strong performance for the period with a strong order book. The company is making good progress in integrating RHI with Magnesita and remained on track to achieve synergy targets of €90 million (approx.) in FY2019 and €110 million (approx.) by FY2020. The company is also taking active actions to solve operational issues and supply chain challenges. Due to deterioration in the steel market, the company has reduced its adjusted EBITA and expects it in the range of €400-410 million.

Financial Highlights – H1 Financial Year 2019 (30^th June 2019, EUR, million)

(Source: Interim Report, Company Website)
 
In the first half of the financial year 2019, driven by a strong performance from industrial business, the company’s revenue surged by 2.2 per cent to EUR 1,541 million as against EUR 1,508 million in H1 FY2018. The adjusted EBITA increased by 12.3 per cent from EUR 209 million in H1 FY2018to EUR 234 million in H1 FY2019, while the adjusted operating margin increased by 140 bps to 15.2 per cent for the period. The company’s reported EBITDA stood at EUR 228 million in H1 FY2019 versus EUR 219 million in H1 FY2018. The reported PBT (profit before tax) surged to EUR 165 million in H1 FY2019 versus EUR 90 million in H1 FY2018. The company’s adjusted earnings per share stood at €3 in H1 FY2019versus €2.55 in H1 FY2018. The reported earnings per share stood at €2.31 in H1 FY2019versus €1.54 in H1 FY2018. The dividend per share stood at €0.50 for the period.

Share Price Performance

Daily Chart as at 7^th November 2019, before the market closed (Source: Thomson Reuters)

On November 7^th, 2019, RHI Magnesita NV shares were trading at GBX 3,826.00 at the time of writing before the market close (at 1:40 PM GMT), up by 2.30 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 5,020.00/GBX 3,134.05.

Valuation Methodology


*Peers: Steppe Cement Ltd, Morgan Advanced Materials Plc and Vesuvius Plc.

Conclusion
The company had shown good financial performance in the first half of the financial year 2019. Both the top-line and the bottom-line performance have improved for the period. The company’s Industrial division showed robust performance.
From the period between H1 FY2019 and Q3 FY2019, the company witnessed a decline in the global steel market, and global production had also declined, which resulted in a reduction of inventories across the supply chain including refractory products in which company trade. Due to deterioration in the steel market, the company had reduced its adjusted EBITA and expects it in the range of €400-410 million. The company’s benefits from cost-saving initiatives are offset by lower volumes sold and lower fixed cost recovery due to slow market environment.

The company’s Price/Cash Flow and Price/Book Value multiples are significantly higher as compared to the industry multiple, reflecting overstretched valuations.

Considering the risks associated with the company’s operations and supported by valuation done using the above method, we believe that investors can “Avoid” the stock at the current price of GBX 3,864 (as on 7^th November 2019, before the market close at 11:45 AM GMT).
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.Currency exchange rate taken for 1 EUR = 0.86559 GBP.

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