On Thursday, BofA Securities updated their outlook on Severn Trent Plc (LON:SVT:LN) (OTC: SVTRF) stock, raising the water utility company's price target to GBP30.00 from GBP29.00, while reaffirming a Buy rating on the stock. The firm highlighted Severn Trent's consistent record of leading operational performance within the sector as a key factor for the positive stance.
Severn Trent's Definitive Document (DD) indicates a minimum of 28% real Asset Management Plan (AMP (OTC:AMLTF)) 8 Regulated Capital Value (RCV) growth, compared to 10% in AMP7, suggesting a robust potential for value creation. The analysis by BofA Securities suggests that Severn Trent's gearing levels are among the safest in the industry, which could support the continuation of its Consumer Price Index (CPI)-linked dividend policy throughout AMP8.
The company's current forecasted FY'25 RCV premium is 17%, compared to the 2010 average of 23%. However, projections show a decrease to 10% by FY'27E. With a Strategic Importance (SI) at 7%, Severn Trent is not widely regarded as a consensus long investment.
BofA Securities has revised its valuation method to include the Net Present Value (NPV) of estimated future Return on Regulated Equity (RoRE) minus the Cost of Equity (CoE) outperformance relative to RCV. This revised approach has led to the increased price objective, signaling a 12% upside potential for Severn Trent shares.
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