Deutsche Bank is sticking with a positive stance on UK utilities, arguing defensive growth qualities should keep the sector in favour as investors grapple with AI disruption fears, rising commodity prices and a softer economic backdrop.
The German bank lifted target prices across the sector, keeping Buy ratings on National Grid PLC (LSE:NG.), Pennon Group PLC (LSE:PNN, OTC:PEGRY), SSE Plc (LSE:SSE) and United Utilities Group PLC (LSE:UU.), while retaining a Hold on Severn Trent PLC (LSE:SVT). National Grid’s target rose to 1,430p from 1,250p, SSE’s to 2,850p from 2,500p, Pennon’s to 650p from 600p and United Utilities’ to 1,450p from 1,300p. Severn Trent’s target was increased to 3,300p from 2,950p.
Analyst James Brand said the sector remains well placed despite a strong run in utility share prices over the past year.
“Utilities has limited downside risks from AI due to their physical assets, while power names such as SSE and National Grid should benefit from increasing electricity demand,” he wrote.
Deutsche also pointed to commodity exposure and inflation linkage as supportive features in the current environment.
“Higher commodity prices are positive for SSE, and while bond yields are rising all UK utilities have a degree of inflation protection,” Brand said, adding that the group lacks “traditional economic cyclicality” and continues to offer “strong organic earnings and RAB growth.”