Investors can expect the shares in London’s listed water utilities Severn Trent PLC (LSE:SVT) and United Utilities Group PLC (LSE:UU.) to outperform in the coming days, according to analysts at JP Morgan.
But the bank's analysts team reckons shareholders should consider selling into this strength.
It comes after Thursday's Ofwat’s draft determinations – the regulator’s periodic recommendations that factor into the fixing of water prices and public service investment obligations for water companies.
JP Morgan analyst Pavan Mahbubani described the DD report as above consensus, but, not overly generous.
Nonetheless, he highlighted that “the outcome was clearly better than the market was anticipating.”
Indeed, the analyst pointed out that Ofwat had acknowledged low investor sentiment over the past several months, with water company valuations below the long-term average.
In the market, on Thursday, investors generally welcomed the news with Severn Trent and United Utilities trading up.
Meanwhile, most of the headlines were reserved for Thames Water, as the capital’s troubled water supplier was in parallel put into ‘special measures’ by Ofwat.
Looking at the performance of Severn Trent and UUs, Mahbubani said: “[We] would use strength as an opportunity to take profits, especially given some of the details we have picked up from the DD that warrant incremental caution.
The analyst added: “We continue to prefer regulated electricity networks in the UK to the water names, with our top pick remaining National Grid.”
Severn Trent shares are up 7% for the week, at 2,687p per share, whilst UU shares show a 5% gain for the week at 1,073p each.