Broker snap: Analysts forgive Severn Trent divi cut

20th Jan 2010 09:17

Severn Trent is up, despite yesterday's decision to accept Ofwat's proposals for 2010-15, as the resulting 10% cut in next year's dividend was less than expected.Nomura didn't think the water company needed a rights issue or a dividend cut to position itself for the upcoming five years. Some anticipated a cash call.But the Japanese broker says 'buy' as the shares, yielding 5.7%, are undervalued versus its peers and trading at a slight discount to Regulatory Capital Value (RCV).HSBC was pleasantly surprised as it thought the payout for the year to 31 March 2011 would fall by a fifth, at the top end of the 15-20% predicted by the market.The bank keeps its 'neutral' rating as it still reckons dividend cover remains tight, but raises the price target to £11.30 from £10.80