UK Edition
Questor: Severn Trent is up 15pc in four months - with further to go
Whoever said utilities were boring? There's the risk that they become a political football (and talk of renationalisation should not be taken too lightly), while the authoritative hand of the regulator is never far away. But, more tangibly, shares in Severn Trent have risen by nearly 15pc since we first tipped the stock at £22.14 in mid-January, with the prospect of increased dividends and the potential for further healthy total returns to come.
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The water utility's full-year results handily beat analysts' expectations, and at the same time the firm exceeded the performance requirements laid down by the regulator - no mean feat.
Reported pre-tax profits rose by 8pc and cashflow rose by 7pc for the 12 months to March, even as the FTSE 100 firm sent out the lowest average bills in Britain, invested £680m in its network and reduced leakage and supply interruptions.
The regulator, Ofwat, recognised this strong showing with a performance-related payment of £47.6m. Investors will share some of the benefits.
The company's pension deficit was reduced, too, and the chief executive, Liv Garfield, and the board proposed a 1pc increase in the dividend to 81.5p. Better still, the management team has a more aggressive plan for raising the dividend in future, helped by the scope for revenue and cost benefits offered by February's £84m acquisition of Dee Valley Water.
Ms Garfield is now targeting an annual increase in the dividend of at least 4pc on top of inflation as measured by the retail prices index.
Admittedly, the prospective 3.4pc yield is currently lower than the 3.8pc on offer from the FTSE All Share index overall, but Severn Trent's payments look reliable and come with those planned future increases.
After a good run the shares may now pause for breath, especially as the election is imminent. In addition, the company is preparing to submit its 2020-25 business plan to regulator Ofwat - and once there is clarity here it is by no means impossible that another bid for the company emerges.
British water assets look cheap relative to those of their international peers and Severn Trent has already successfully fended off a bid from a consortium composed of Borealis Infrastructure Management, the Kuwait Investment Office and Canada's Universities Superannuation Scheme.
Political risk is lurking but Severn Trent could still reward patient investors with consistent total returns.
Questor says: buy
Ticker: SVT
Share price at close: £25.34
Update: Card Factory
A solid first-quarter trading update at last week's annual meeting emphasised the cash-generative nature of Card Factory's business and the company's ability to pay attractive ordinary and special dividends.
Like-for-like sales growth reached the upper end of the targeted 1pc-3pc range as Card Factory opened 11 new shops and the website continued to grow. Better still, net debt has come down again, to £125m from £136m, to show how little working capital or capital expenditure is needed.
This all means that the Wakefieldbased firm continues to generate plenty of cash and the chief executive, Karen Hubbard, continues to plan for another special dividend this year. The consensus forecast of an ordinary payment of 9.7p equates to a 3pc yield.
After a gain of a third since our initial tip in November the shares are not as cheap as they were but the cashflow and yield mean they are still a good holding for income investors.
Questor says: hold
Ticker: CARD
Share price at close: 332.8p
Update: Clipper Logistics
Shares in Clipper Logistics rose when the Yorkshire-based firm announced the acquisition of Tesam Distribution.
The gross price is £11.8m but the target comes with cash and property worth just over £6m. Tesam is profitable and its expertise in warehousing and distribution services to the retail industry fits neatly with Clipper Logistics' core competencies and competitive position. The net purchase price means the deal should immediately enhance earnings.
The shares have risen by nearly 20pc since we first tipped them in October and now trade on a lofty valuation but the growth potential means they are a core long-term mid-cap holding.
Questor says: hold
Ticker: CLG
Share price at close: 425p