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Deutsche Bank pulls plug on Pennon shares, downgrading rating to ‘hold’ from ‘buy’

The German bank's analysts said: “We now see the risk-reward trade-off for the stock as more balanced, with it trading roughly halfway between our RAB nationalisation bear case and a bull case where political risks fade"

Water
The political risks around Brexit could potentially culminate in the coming days, leading them to move their rating down

Deutsche Bank pulled the plug on Pennon Group PLC (LON:PNN) shares on Tuesday, downgrading its rating for the water company to ‘hold’ from ‘buy’ as it believes it now looks fairly valued.

The German bank left its target price for the FTSE 250-listed company unchanged at 780p, with the stock changing hands this morning at 756p each, down 3.2%.

READ: Pennon Group maintains full-year expectations as hot weather boosts water demand

In a note to clients, Deutsche Bank’s analysts pointed out that Pennon's shares have risen strongly since early April and on Monday, closed at their target price.

They added that the political risks around Brexit potentially could culminate in the coming days, leading them to move their rating down.

The analysts said: “We now see the risk-reward trade-off for the stock as more balanced, with it trading roughly halfway between our RAB nationalisation bear case and a bull case where political risks fade.

“Although it has a post review regulatory earnings yield slightly above the peer group average, it no longer stands out, in our view.”

They noted that the Pennon downgrade leaves United Utilities PLC (LON:UU.) as their only 'buy' rating in the UK water sector.

Quick facts: Pennon Group PLC

Price: 1100 GBX

LSE:PNN
Market: LSE
Market Cap: £4.63 billion
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