Broker snap: KBC laps up Modern Water

House broker KBC Peel Hunt has upped its price target for Modern Water after the desalination firm's interim results.The broker has raised its fair value for Modern Water Group (MWG) shares from 69p to 77p and reiterated its 'buy' recommendation.'MWG's previous undervaluation, where it traded at a 30% discount to the reported cash balance, has now corrected. There is still cash backing today of 43p per share, but we believe that, as the technology is proved to work in a commercial context, investors will apply a premium to reflect the strong potential of the desalination market,' asserts KBC analyst Andrew Shepherd-Barron.KBC assigns a notional premium of £20m to the cash valuation of Modern Water to reflect the strategic value of the company's technology.'The Gibraltar plant, which began producing water in early May, continues to supply potable water at a steady rate. The new membranes, which should boost plant efficiency further, are due to be installed later this month and should lift proven returns,' the broker said.