Severn Trent Delivers 74% Adjusted EPS Growth and Upgrades FY26 Guidance in Strong H1 2025 Results

The only blot is customer experience. A new C-MeX methodology is expected to put the sector in a net penalty position of around £100 million, and Severn Trent says it will be in penalty this year. The group points to improving underlying service as more customers migrate to Kraken, but it is a near-term drag to watch.

Record investment and a bigger asset base

Capital investment reached £769.0 million in the half as the group frontloaded AMP8. The regulatory asset base is now guided to grow by 13% this year to £15.4 billion, which matters because future base returns and many outperformance rewards are calculated on that value.

There is a strong focus on execution. Severn Trent expects to have 80% of enhancement schemes in contract by March 2027 and is leaning on plug-and-play designs to standardise and speed builds. The company is guiding to the maximum possible PCD reward on the two schemes measured this year, Mains Renewals and Metering.

Balance sheet, funding and inflation

Adjusted net debt increased to £9,149.8 million as investment accelerated, but regulated gearing eased to 61.5% from 62.7% at year end. Liquidity looks ample: the group is funded to March 2027 and held £1,449.2 million in cash and cash equivalents at 30 September 2025. EBITDA interest cover sits at 4.5x and PBIT cover at 3.0x.

Inflation is a double-edged sword. It lifts cash interest on index-linked debt and pushes FY26 net finance costs up by an expected 25-30% year-on-year. But within the regulatory model, inflation also uplifts the asset base and allowed returns, of which Severn Trent is a net beneficiary. The group has fixed around 95% of expected wholesale energy usage for the rest of FY26, helping manage cost volatility.

Guidance and medium-term outlook

• FY26 ODIs: at least £40 million net reward.
• Operating costs and infrastructure renewals: now 5-8% higher year-on-year, improved from “up to 12% higher”.
• Net finance costs: 25-30% higher, mainly inflation driven.
• Regulatory return: around 13% this year.
• Capital investment: £1.7 billion to £1.9 billion in FY26.
• Dividend: 2025/26 total dividend of 126.02p, in line with policy to grow by CPIH.

Beyond this year, management reiterates its plan to double adjusted EPS in the three years to FY28 from a base of 112.1p in FY25. Regulated gearing is expected to remain 60-65% by FY30, with the regulatory asset base forecast at £21.9 billion. Infrastructure Services, which now includes Network Services acquisitions, is targeting around £100 million EBITDA in FY30, up from £47.5 million in FY25.

Why this matters for shareholders

Positives I like

• Strong start to AMP8: earnings and PBIT up sharply, with investment pacing ahead of plan.
• Upgraded ODI outlook: visible, near-term upside from operational outperformance in areas regulators and the public care about.
• Asset base compounding: RCV guided to £15.4 billion this year, a building block for future returns.
• Financing edge: new debt raised at tight spreads, interest cover healthy, cash and facilities funding the plan to 2027.
• Dividend visibility: policy-backed growth with an interim dividend of 50.40p and full-year guidance of 126.02p.

Watch-outs

• H2 profit mix: management flags more second-half headwinds from increased depreciation, infrastructure renewals and a shift to measured billing.
• Customer experience penalties: C-MeX will bite this year, though the sector impact is widespread.
• Higher finance costs: inflation helps RCV and returns, but also lifts interest charges.
• Regulatory and legal backdrop: the sector faces ongoing scrutiny; a collective action claim appeal is due in February 2026.

Operational colour: water, wastewater and resilience

On water, the company managed a drought summer without hosepipe bans thanks to network resilience, pressure management and continued leakage reduction. No‑dig repairs and remote pressure control are helping push bursts down by over 20% on controlled parts of the network. On wastewater, Severn Trent delivered 99.5% permit compliance, 580 environmental programmes and 100% Satisfactory Sludge Disposal in 2024, underpinning that four star status.

Key FY26 figures and guidance at a glance

Item	Figure
RCV year-end guide	£15.4bn (+13% year-on-year)
ODIs (FY26)	≥ £40m, post-tax, 2022/23 prices
Regulatory return (FY26)	~13%
Capital investment (FY26)	£1.7bn – £1.9bn
Net finance costs (FY26)	25% – 30% higher year-on-year
Dividend (FY26)	126.02p guided

What to watch in the second half

• Delivery against ODI and PCD targets as the weather turns and activity levels rise.
• Cost trajectory versus the improved 5-8% guidance.
• Any quantified C-MeX penalty disclosure.
• Progress on contracting the enhancement programme and execution of plug-and-play assets.
• Financing activity and interest costs as investment continues to ramp.

Josh’s take

This is a strong print. Severn Trent is doing what investors want in AMP8: invest early, outperform on regulated metrics, grow the asset base, and translate that into higher earnings and a reliable, inflation-linked dividend. The C-MeX penalty is a frustration, and H2 will be a tougher comparator, but the direction of travel is positive. If management keeps converting operational delivery into ODI rewards while keeping financing tight, the path to doubled adjusted EPS by FY28 looks credible.