Picture supply: Getty Pictures
Two FTSE 100 shares I wish to take a more in-depth have a look at are United Utilities (LSE: UU.) and Severn Trent (LSE: SVT) after buying and selling updates final week.
What they do
Each companies present water and sewerage providers to particular territories within the UK. United operates within the North West, and Severn Trent operates within the Midlands.
The defensive side comes from the truth that everybody requires clear water and sewerage providers. This contains private houses, companies, and the whole lot in between.
So how have the shares fared throughout latest volatility? United shares have been in a reasonably regular place over a 12-month interval. Right now final 12 months, they have been buying and selling for 1,024p and at present the shares are buying and selling for 1,033p, a lower than 1% rise.
Severn Trent shares have carried out a bit of worse than its counterpart. Over the identical interval, the shares are down 8%, from 2,768p right now final 12 months to present ranges of two,527p.
The funding case
For each companies, the defensive aspect is after all a plus level as it might probably assist revenues stay secure. Nevertheless, there are important challenges to beat.
Beginning with United, its latest replace made for good studying, in my opinion. The enterprise maintained its full-year steerage for the 2023/24 fiscal 12 months, and its earnings progress forecast appears good. A dividend yield of 4.5% at current, and rising transferring ahead, is promising.
Nevertheless, it’s value noting that dividends aren’t assured and forecasts don’t at all times come to fruition. Moreover, the agency talked about inflationary pressures will influence its backside line, however this was not surprising.
From a bearish view, debt ranges are a threat of word, presently at £8bn. That is increased than the £7bn market cap the agency presently possesses. Nevertheless, based mostly on future earnings forecasts and defensive operations, I’m not overly apprehensive in the long run.
Shifting to Severn Trent, its replace was much less clear, offering a lot much less info with reference to future earnings. It did point out the actual fact it was transferring £400m from its subsequent regulatory interval (from 2025 to 2030) to the present interval. That is getting used to put money into infrastructure, particularly trying to lower down leaks, sewage spills, and different enhancements. This might spell some excellent news sooner or later, as it could must spend much less later if it addresses points now.
From a bearish view, Severn Trent additionally has debt on its books that would damage returns and investor sentiment. Along with this, a latest focus by Parliament on sewage spills – an industry-wide problem, I have to add – is one thing that would damage investor sentiment too. Lastly the shares look costly on a price-to-earnings ratio of 60!
My verdict
I’m not satisfied both of those shares can be good buys for me and my holdings.
I believe there are too many hurdles to beat that would damage progress and returns. For my part, there are higher FTSE 100 shares on the market for me.
I received’t purchase any shares in both inventory at present, however I’ll maintain an in depth eye on developments.
