Severn Trent share price nosedives amid the Thames Water crisis

Severn Trent (LON: SVT) share price plunged on Thursday as investors assess the ongoing Thames Water crisis in the UK. The stock tumbled by more than 2.80%, becoming the worst performer in the FTSE 100 index. It tumbled to the lowest level since March 2nd.

Thames Water crisis continues

The biggest UK news this week is the ongoing collapse of Thames Water, the biggest water company in the country. The firm is being crashed by its huge debt pile of over 14 billion pounds. According to media reports, the government is now considering nationalizing the company, albeit temporarily.

The crisis has hit other companies in the industry, including Severn Trent. For starters, Severn Trent is a big water and sewarage company that serves over 4.6 million customers. Severn Trent has 4.5 million customers while Hafren Dyfrdwy has over 100k customers. It processes over 2 billion liters of water every day and over 3.2 billion of wastewater each day.

Therefore, Severn Trent share price is crashing because of the ongoing sector woes. This is known as being guilty by association. At the same time, there are concerns that the industry will come under intense regulatory scrutiny in the coming months.

Some of the regulations could impact the amount of dividends the company is supposed to pay. In the last financial year, Severn Trent paid 261 million pounds to its shareholders, up from 255 million pounds in the previous year. The company hopes to keep growing its dividend payouts in line with the core inflation. 

Additionally, the company will likely be under pressure to boost its investments to improve its network. In its previous statement, the company said that it would spend between 850 million pounds and 1 billion pounds in capital investments this year. Therefore, the Severn Trent share price likely dropped as investors priced lower payouts.

Severn Trent share price forecast

The daily chart shows that the Severn Trent stock price has been in a strong bearish trend in the past few days. It recently dropped below the lower side of the ascending channel shown in black. Most importantly, the stock formed a break and retest pattern, which is a bearish sign.

The stock also formed a small double-bottom pattern. In price action analysis, this pattern is usually a bullish sign. Therefore, the stock moved below the important support at 2,624p, invalidating the double-bottom pattern. Therefore, there is a likelihood that the shares will continue falling as sellers target the key support at 2,500p.

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