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Deutsche Bank puts utilities in crosshairs; downgrades United Utilities amid target price changes

The bank said that while it had turned more positive on the sector in early April, an average 20% rally in prices since then meant there was now “a more balanced risk-reward trade-off”

Kitchen tap
Despite a downgrade, analysts upped the target price for United Utilities to 820p from 800p

Deutsche Bank has put UK utilities in its crosshairs, issuing a downgrade for United Utilities Group PLC (LON:UU.) to ‘Hold’ from ‘Buy’ amidst several target price changes for three other companies.

The German bank said that while it had turned more positive on the stocks in early April when political risk coupled with regulatory and competitive pressures had caused a depreciation in the sectors value, an average 20% rally in prices since then meant there was now “a more balanced risk-reward trade-off”.

READ: United Utilities ebbs lower as full-year profits fall

For United Utilities, analysts said the FTSE 100 provider’s shares were now close to their value, justifying a cut to its rating, although they also upped its target price for the group to 820p from 800p.

Meanwhile, the bank upped its target prices for three of the other major utility providers, moving Severn Trent PLC (LON:SVT) to 2,000p from 1,850p, Pennon Group plc (LON:PNN) to 850p from 720p, and National Grid PLC (LON:NG.) to 860p from 780p.

“Only Pennon stands out in our view with a c.6% dividend yield and secure dividend growth”, said Deutsche’s analysts.

They added: “National Grid has been making good progress in the US although trades on premium multiples and we retain a Hold.”

READ: Pennon sees full-year profit, dividend rise, positive on outlook for water and waste

Financially, the four providers saw mostly good fortunes last year, with National Grid, Pennon, and Severn all seeing an increase in their profits for the full year.

United Utilities was the only outlier, reporting a £19mln fall in underlying pre-tax profits for the year.

In mid-morning trading Friday, United Utilities shares were up 0.46% at 779.4p, while Severn Trent was down 0.28% at 1,983.5p, Pennon Group was up 1.37% at 757p, and National Grid was up 0.85% at 840.4p.

Quick facts: United Utilities Group PLC

Price: 872.1461 GBX

Market: LSE
Market Cap: £5.95 billion

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