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Severn Trent Rises After Saying It Can Meet Targets

Jan. 19 (Bloomberg) -- Severn Trent Plc, the U.K.’s second-largest water company, climbed to a seven-month high in London trading after saying it can meet tariff and spending requirements set by industry regulator Ofwat.

Severn Trent rose 34 pence, or 3.1 percent, to 1,123 pence, the highest close since June 16, valuing the Birmingham, England-based company at 2.7 billion pounds ($4.4 billion).

The shares have risen 12 percent since Ofwat set new targets for investment and tariffs on Nov. 26. The regulator reduced average price caps for Severn Trent by 0.6 percent over the five years to mid-2015 and kept a July proposal to lower the average cost of capital to 4.5 percent from 5.1 percent.

“The Final Determination represents a tough outcome,” Severn Trent Chief Executive Officer Tony Wray said today in a statement. The company will trim its dividend by about 10 percent for the first year of the period to finance efficiency improvements, he said.

United Utilities Group Plc, Northumbrian Water Group Plc and Pennon Group Plc are also subject to the pricing review. Analysts have said the tariff limits, which come into effect in April, may prompt utilities to cut dividends and reduce costs.

Severn Trent will announce results for the year through March on May 28. Northumbrian and Pennon have both accepted Ofwat’s determinations. United Utilities, Britain’s largest publicly traded water company, is expected to announce its view on Jan. 21.

To contact the reporter on this story: Kari Lundgren in London at klundgren2@bloomberg.net

To contact the editor responsible for this story: Guy Collins at guycollins@bloomberg.net.

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