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UK water stocks Severn Trent and Pennon upgraded by JP Morgan

Severn Trent and Pennon are upgraded to ‘overweight’, though JP Morgan’s price targets were retained at 2,250p and 830p.
water coming out of tap
Pennon and Severn Trent shares gained 1.5% and 1.26% respectively on Friday

It may be time for investors to dip a toe back into UK water, that’s according to JP Morgan’s European utilities analyst Christopher Laybutt, who has upgraded Severn Trent PLC (LON:SVT) and Pennon PLC (LON:PNN).

Laybutt, in a note, said that London’s UK water utilities are “oversold” and their valuations are at “multiples not seen since the credit crisis”.

READ: Severn Trent reaffirms full-year guidance

Both Severn Trent and Pennon are upgraded to ‘overweight’, though JP Morgan’s price targets were retained at 2,250p and 830p respectively, and the apparent bullishness isn’t exactly watertight.

“We see significant upside to our base case valuations, but also to a range of downside scenarios (including nationalisation),” Laybutt said.

The analyst added: “The key themes have been all too familiar: regulatory risk, rising bond yields and political risk.

“Of the trio, it is the nationalisation threat that has garnered a surprising level of attention since the Labour Party conference in September, but we would argue that it is the persistence from all three barbs that has driven the stocks to unusually low levels.”

Pennon and Severn Trent shares gained 1.5% and 1.26%, trading at 640p or 1,813p respectively.

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February 13 2015

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