TAKEOVER interest in Severn Trent will dominate the water giant’s full-year results this week as it seeks to persuade its wealthy suitor to up its bid by emphasising recent cost-cutting measures.
The group, which supplies 4.2 million households and businesses across the Midlands and parts of Wales, recently rejected an approach from an overseas consortium headed by Canadian infrastructure investment group Borealis.
Severn said the approach, thought to be priced at under £5 billion, “completely fails” to recognise the water company’s value, adding that it offered only a “modest premium” to its share price.
Top investors said last week that they were holding out for at least 2,300p a share, compared to around 2,000p initially offered.
But analysts think Borealis and its partners – the Kuwait Investment Office and Universities Superannuation Scheme – will return.
Andrew Mead, an analyst at Goldman Sachs, said: “Historically, none of the previous approaches in the water sector that have been announced in the past ten years have failed in taking over the company.”
Severn is expected to report a slight dip in underlying pre-tax profits to £271.5 million for the year to 31 March when it reports on Thursday, down from £275.3m a year earlier, according to a consensus of analysts.
But revenues are forecast to rise to £1.83bn from £1.77bn a year earlier.
Keith Bowman, analyst at Hargreaves Lansdown, said regulated bill hikes will drive revenues higher, and added that the company is likely to emphasise operational improvements as bidders circle.
He said: “Ongoing efficiency measures being made at the company are likely to be underlined, with improvements in leakage and pollution targets potentially emphasised.”