The German bank said that while it had turned more positive on the stocks in early April when political risk coupled with regulatory and competitive pressures had caused a depreciation in the sectors value, an average 20% rally in prices since then meant there was now “a more balanced risk-reward trade-off”.
For United Utilities, analysts said the FTSE 100 provider’s shares were now close to their value, justifying a cut to its rating, although they also upped its target price for the group to 820p from 800p.
Meanwhile, the bank upped its target prices for three of the other major utility providers, moving Severn Trent PLC (LON:SVT) to 2,000p from 1,850p, Pennon Group plc (LON:PNN) to 850p from 720p, and National Grid PLC (LON:NG.) to 860p from 780p.
“Only Pennon stands out in our view with a c.6% dividend yield and secure dividend growth”, said Deutsche’s analysts.
They added: “National Grid has been making good progress in the US although trades on premium multiples and we retain a Hold.”
Financially, the four providers saw mostly good fortunes last year, with National Grid, Pennon, and Severn all seeing an increase in their profits for the full year.
United Utilities was the only outlier, reporting a £19mln fall in underlying pre-tax profits for the year.
In mid-morning trading Friday, United Utilities shares were up 0.46% at 779.4p, while Severn Trent was down 0.28% at 1,983.5p, Pennon Group was up 1.37% at 757p, and National Grid was up 0.85% at 840.4p.