Investor sentiment towards the UK water sector has hit its worst level in a year despite regulator Ofwat last month confirming firms would soon be able to hike bills.
According to UBS analysts, UK water firms had become the most negatively crowded based on long and short positions among their European counterparts as of January.
An average score of -9, reflecting net long and short positions on stocks, was the worst seen across the UK water sector in the past 12 months, the bank added in a note.
This meant investors were overwhelmingly betting on UK water stocks to fall ahead of the introduction of Ofwat’s new regulatory framework for the period to 2030.
Severn Trent PLC (LSE:SVT) and Pennon Group PLC were among Europe’s most crowded water sector shorts, UBS noted, behind only Finland’s Fortum and Italy’s Snam.
United Utilities Group PLC (LSE:UU.) had faced the largest swing in sentiment across the continent’s water companies between mid-December and early January meanwhile, of +2 to -8, leaving net positive positions on 16 of Europe’s 33 water stocks.
Having lobbied for an average 40% increase to bills, Ofwat in December announced UK water companies would be able to lift bills by an average of 36% over the coming five years from April.
Among listed companies, Severn Trent was granted a 47% increase, against the 46% rise it had asked for, with Pennon and United given hikes in line with requests.
Increases would fund some £104 billion in upgrades across the sector, Ofwat had said, and equate to an additional £31 a year for the average consumer.