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Citigroup turns off the 'buy' tap for United Utilities, cutting its rating to ‘neutral’

The Citi analysts said they believe water companies "are now fully priced on fundamentals, including operational and financial outperformance”

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The US bank’s analyst upped their target price for UU’s to 1,128p from 865p

Citigroup turned off the 'buy' tap for United Utilities PLC (LON:UU) shares on Friday, cutting its rating for the blue-chip firm to ‘neutral’ even though it hiked its target price after recent strong gains by UK water utilities.

The US bank’s analyst upped their target for the FTSE 100-listed firm to 1,128p from 865p, with the shares currently trading at 1,061p. up 1.4% on Thursday’s close.

READ: United Utilities gets double upgrade to ‘buy’ as Jefferies says regulation changes ‘better than expected’

In a note to clients on the water companies, the Citi analysts said “we believe they are now fully priced on fundamentals, including operational and financial outperformance.”

“However,” they added, “as these shares tend to be driven by their secure dividend yields post a regulatory review in the context of the current low rate environment and likely to be supported by the current ESG themes, we see scope for the current premium rating to remain for now.”

The analysts concluded: “While we do not preclude further M&A, our LBO model shows that historic transaction multiples are difficult to justify on cheap financing alone.”

Citigroup maintained ‘neutral’ ratings on UU's peers, Severn Trent PLC (LON:SVT) and Pennon PLC (LON:PNN).

Quick facts: United Utilities Group PLC

Price: 917.6 GBX

LSE:UU.
Market: LSE
Market Cap: £6.26 billion
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