JP Morgan upgrades Severn Trent in bullish water companies update

(Sharecast News) - JP Morgan upgraded its price targets for UK water companies and its recommendation on Severn Trent after the regulator approved five-year plans and December's election removed the threat of nationalisation.
The investment bank upped its rating on Severn Trent to 'neutral' from 'underweight' and increased its price target to 2,550p a share from 2,000p. JP Morgan maintained its 'overweight' rating on United Utilities and increased its price target to 1,100p from 900p.

Pennon kept its 'neutral' rating from the investment bank as its analysts increased their price target for the company to 1,125p from 760p to take account of speculation about a bid for Pennon's Viridor waste management business.

JP Morgan's analysts said regulator Ofwat's acceptance of five-year plans for the sector that provided more certainty on dividends. The Tories' success at December's general election also set aside concerns about nationalisation under a Labour government, Chistopher Laybutt and his team said.

"With political and regulatory headwinds now behind us, we are also moving our valuation grid higher: removing nationalisation discounts, increasing asset multiples and lowering discount rates," Laybutt wrote in a note to clients. "We are upgrading Severn Trent to neutral ... as we see sector valuations continuing to benefit from improved cash flow profile, dividend security and M&A speculation."