logo-loader
viewSevern Trent

Severn Trent upgraded and water sector gets price target hikes from JPMorgan

Recent weeks have put “significant regulatory and political risks behind us”, analysts said

Severn Trent -

With the headwinds seen to be fading for the UK’s listed water companies, JPMorgan Cazenove has upped its forecasts, valuations and share price targets for the sector’s big players.  

In recent weeks, the regulator Ofwat’s price controls have been published for the next five years and Severn Trent PLC (LON:SVT) and United Utilities Group PLC (LON:UU.) revealed their five year dividend policies.

READ: Pennon to change dividend policy as concedes to regulator's controls

Allied to the general election result removing the threat, for a few years at least, of Labour’s renationalisation plans, the recent weeks have put “significant regulatory and political risks behind us”, analysts at the investment bank said.

This led to an upgrade for Severn Trent to ‘neutral’ from ‘underweight’ as its share price target was hiked to 2,550p from 2,000p.

Pennon Group PLC (LON:PNN), whose shares have been the strongest performer in the sector partly due to speculation that it will sell off its Viridor arm, was kept at ‘neutral’ but its target was lifted to 1,125p from 760p.

The top pick in the sector is UU, where Cazenove has an ‘overweight’ rating and upped its price target  to 1,100p from 900p, saying “we see the deep discount to the peer group fading over time”.

After the Ofwat final deadline passed, JPM’s updated estimates move “considerably higher” than consensus across the coming three years, with the price controls resulting in “a modest reduction in allowed returns”.

The analysts noted that the final determination from Ofwat differed “markedly” the initial drafts, with a final profile of cash flows that “effectively eliminates the temporary cash flow weakness in the early years of the determination, providing a smoother dividend payout trajectory”.

UU and Severn Trent will begin the new regulatory period with dividends growing at least inline with CPIH inflation, with Pennon saying last week that it will update the market at its full year results in June.

Quick facts: Severn Trent

Price: 2454 GBX

LSE:SVT
Market: LSE
Market Cap: £5.86 billion
Follow

Add related topics to MyProactive

Create your account: sign up and get ahead on news and events

NO INVESTMENT ADVICE

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is...

FOR OUR FULL DISCLAIMER CLICK HERE

Watch

Electric vehicle sales to accelerate following coronavirus pandemic

Roskill analyst Jose Lazuen tells Proactive London's Andrew Scott severe falls were expected in EV sales but that European and Chinese policies coupled with consumer preferences have shown them to remain strong. He adds that policy is going to favour and push EV sales in certain jurisdictions...

2 days, 8 hours ago

2 min read