Severn Trent plc is a water company, based in the United Kingdom. The company is listed on the London Stock Exchange.
The utility sector – particularly water – is one that has increasingly perked the interest of investors in the 21st century. Water is, of course, much like food or oxygen – it is a necessity for human survival – but water is increasingly becoming an even more invaluable commodity; the world’s population is growing, but the amount of available drinking water available is falling in relative terms. Businesses operating in the water supply and filtration business are thus viewed as attractive investment prospects; as one the largest water suppliers in the UK (catering to a sizeable geographical expanse, the population of which is on the up), and a member of the FTSE 100 Index, Severn Trent shares are a natural first port of call for investors seeking to unlock the rewards of water.
Severn Trent shares will also be agreeable to those seeking to implant a defensive strand to their portfolio. A defensive share is defined as one that offers stability during every phase of the business cycle – non-cyclical, it is generally not adversely impacted by fluctuations or slowdown in the wider market. In fact, the best defensive shares almost by definition outperform the market overall. Severn Trent shares fit this bill and then some – no matter how the wider economy is doing, people will always need access to clean water, so the business is almost ‘recession-proof’ from an investment perspective. Severn Trent is also, despite its name, a company with an international footprint – it has operations spread across the globe, including Europe, Asia and North America.
One of the issues with defensive shares is that they are the ‘go-to’ destination for investors who wish to add a layer of protection to their portfolios. This means competition for (and, thus, prices of) such shares can be very high, and Severn Trent is no exception. Those who crave fortification and safeguards must be prepared to pay a premium for the privilege. Defensive shares can often be overvalued relative to their actual return size. The board of Severn Trent evidently value the firm highly too, having rejected several takeover bids that analysts have deemed to be very generous.
Furthermore, it would be wrong to deem Severn Trent a perpetually booming company. In fact, investors may only benefit from such a defensive share in times of economic slowdown, as they do not represent a soaring growth prospect during boom periods. Often, the consistently strong performance of defensive shares is merely relative to the weaker performance of most other sectors during times of negative growth.
Ultimately, there a number of reasons to invest in Severn Trent – but also a number of reasons to avoid the company too. Individual traders must decide for themselves, according to their own metrics and objectives, whether the share is worth their money – and time.