Deutsche Bank has taken the clippers to the water sector with all of the three listed groups having their price targets lowered.
In what was an otherwise bullish update of prospects for European utilities, the German broker has cut its target for Pennon to 700p from 760p, Severn Trent to 2,600p from 2,700p and United Utilities to 1,060p from 1,110p.
All three water and sewage groups are rated as ‘hold’.
Deutsche Bank’s caution comes after reports that sector leader Thames Water has just six weeks to agree a rescue plan with regulator Ofwat.
According to those reports, the debt-laden London utility has until May 23 or the deadline for Ofwat to decide how much prices in the sector can rise during the next price regime, to formulate a turnaround plan.
Thames, which has debts of £15 billion, says it can fund its business for fifteen months from existing cash reserves but bondholders are said to be sceptical.
Investors recently refused to carry through a planned £500 million equity cash injection after Ofwat rejected their calls for a 40% price hike.
Bills are still going to rise steeply as part of Thames’s recovery plan but if a plan cannot be agreed by the May 23 deadline there remains the possibility the utility will be nationalised, something some analysts suggest might make the whole sector ‘uninvestable’.