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Deutsche Bank plays favourites in utilities as Pennon Group upgraded while target prices cut across the board

In a note to clients, the bank said the sector has lost a quarter of its value over the last year as it was hit by regulatory and competitive pressures as well as concerns over political risk

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In the reasoning for Pennon’s upgrade, analysts said the group’s “7% dividend yield looks secure"

Deutsche Bank has swung its axe at the UK utilities market, cutting target prices for four of the major retailers, but granted Pennon Group plc (LON:PNN) an upgrade to ‘Buy’ from ‘Hold’ as its target price was cut to 720p from 840p.

The German bank was not so kind to the other three, with Severn Trent PLC (LON:SVT) cut to 1850p from 2200p, United Utilities Group PLC (LON:UU.) to 800p from 870p, and National Grid PLC (LON:NG.) to 780p from 850p.

Regulation and competition cause sector value loss

Deutsche reiterated its ratings on the three retailers, with Severn Trent and National Grid at ‘Neutral’ and United Utilities at ‘Buy’

In a note to clients, the bank said the sector has lost a quarter of its value over the last year as it was hit by regulatory and competitive pressures as well as concerns over political risk.

“The fallout leaves the waters looking increasingly attractive, although we see more downside for the energy retailers” Deutsche added.

In the reasoning for Pennon’s upgrade, analysts said the group’s “7% dividend yield looks secure in our view and it is likely to be able to move into the next regulatory period without a significant drop in group earnings”.

Shares in Pennon were up 0.8% at 651.8p in early trading Friday, while Severn Trent was up 0.1% at 1,860.5p, United Utilities was up 0.9% at 714.8p, and National Grid was down 0.3% at 821p.

Quick facts: Pennon Group PLC

Price: 916 GBX

LSE:PNN
Market: LSE
Market Cap: £3.86 billion
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