Severn Trent Plc (LON: SVT)

London Stock Exchange-traded Severn Trent Plc is the UK's third-largest Water, Gas and Multi utilities company. The outstanding market capitalisation of the group stood at £5.6bn, which ranks it among the large-cap companies listed on the LSE. Also, the group is a constituent company of the broader FTSE 100 index. As on December 12, 1989, its shares got admitted to the main market of the LSE for trading.

Interim Results: H1 FY20 (ended as on September 30, 2019)
As on November 21, 2019, the group reported its interim results for the first half ended as on September 30, 2019.

Source: Co. filings

During the period under consideration, the group’s turnover increased by 3.2% to £910.0m against £881.5m recorded in the first half of the previous financial year, on account of tariff increase in Regulated Water and Wastewater revenue and growth in business service’s external turnover. Underlying PBIT plummeted by 4.3% to £286.3m on a YoY basis, largely because of profit in regulated water and wastewater segment slumped by 3.1%, because of below inflationary growth and higher infrastructure renewals expenditure. However, the reported group's PBIT declined by 4.65% to £285.3m.

Basic Earnings per share from continuing operation plunged 11.6% to 61.7p/share from 69.8p/share reported in the same period of the previous financial year.

Stock Performance

 Daily Price Chart (as on November 21, 2019), before the market close. (Source: Thomson Reuters).

Shares of SVT delivered a price return of 23.75% on a YoY basis, up around 28.7% on a YTD basis, and added 16.67% in the past one month. Despite a decent surge in the share price, the dividend yield of the company stood at 3.97%.
At the time of writing (before the market close, at 02:27 PM GMT), shares of SVT traded 39 points or 1.67% lower at GBX 2,299.0. In the year-over period, its shares have registered a 52w high of GBX 2,379.0 and a 52w low of GBX 1,757.01, respectively.

Conclusion
The group’s performance in the first half of FY20 was lacklustre against the corresponding period of the previous financial year, in terms of revenue, PBIT and EPS as well. However, despite a relatively bad performance against the year-over period, the group’s interim dividend declared during the H1FY20 increased 7.2% to 40.03 p/share against 37.35 p/share it recorded in the H1FY19.

Stock of SVT traded well above its short-term and long-term crucial support levels of 50-days and 200-day simple moving averages, which is a bullish technical measure but other technical measures like 14-day Relative Strength Index is trending towards overbought zone, and the Moving Average Convergence Divergence is falling, and MACD line hovering below the 9-day EMA signal, a negative technical measure.

Therefore, after considering the recent performance of the company in the H1FY20, and technical measures, we have given a “Watch” recommendation at the closing price of GBX 2,337.0 (as on November 20, 2019), while we look for any upcoming catalysts in the near term.

Mitie Group Plc (LON: MTO)

London Stock Exchange-traded Mitie Group Plc is an industrial support services group company. The outstanding market capitalisation of the company stood at £521.83 million which ranks it among the small-cap company listed on the London bourse.

Interim Results: H1 FY20 (ended as on September 30, 2019)

Source:Co. filings.

During the period under consideration, the group’s revenue surged by 11% to £1,078.0 million against £971.6 million recorded in the year-over period, which was supported by SG acquisition and continued growth in strategic accounts contributed 4% in the overall growth. However, the group's organic revenue improved just 1.9% to £989.7m from £971.6mreported in the same period of the previous financial year. Operating profit before other items from continuing operations increased by 5% on account of improved contributions from the Detention & Escorting Services contract and VSG, partly counterbalanced by lower renewal margins in certain contracts.

Basic earnings per share improved 5.8% to 5.5p/share, and the board has declared an interim dividend of 1.33p/share, which was flat against the H1FY19 interim dividend declared.

Stock Performance
 
Daily Price Chart (as on November 21, 2019), before the market close. (Source: Thomson Reuters).

Shares of the MTO have delivered a negative price-return of 7.58% on a YoY basis, up around 18% on a YTD basis; however, the short-term trend is unfavourable as in the past three months, the stock has tumbled 10.93% and declined approximately 13% in a month time, respectively.

At the time of writing (before the market close, at 02:27 PM GMT), shares of MTO traded 8.5 points or 5.9% lower at GBX 134.1. In the year-over period, its shares have registered a 52w high of GBX 170.10 and a 52w low of GBX 105.80, respectively.

Conclusion
The group’s performance in the first half of FY20 was moderate, as organic revenue growth was just 1.9% above the same period of the corresponding financial, with increased finance cost and flat interim dividend on a YoY basis.
And, its shares are undergoing through a steep downtrend, as traded well below its short-term as well as long-term crucial support levels of 50-day, 100-day and 200-day moving averages.

Also, from the group's gross margin of 13.39%, operating margin of 13.25% and PAT margin of 1.68% is well below the industry average of 32.9%, 40.7% and 9.89%, respectively, which makes the group fundamentally weaker against the industry average fundamentals.

Therefore, based on the above rationale, we have given a “Watch” recommendation at the closing price of GBX 142.6 (as on November 20, 2019), while we look for any upcoming catalysts in the near term.

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