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Investing.com - RBC Capital downgraded United Utilities Group (LON:UU) (OTC:UUGRY) from Outperform to Sector Perform on Friday, maintaining a price target of GBP11.75. The water utility giant, currently valued at $10.4 billion, has maintained an impressive track record of dividend payments for 34 consecutive years.
The downgrade comes as RBC Capital sees "more limited upside" in United Utilities’ valuation given the stock’s current trading level, according to the research note. InvestingPro analysis supports this view, with the stock currently trading slightly above its calculated Fair Value.
RBC Capital noted that the company’s recent Capital Markets Day provided "additional colour highlighting UU’s strong focus on delivery" of its business objectives.
The research firm indicated it would await further details on the breakdown of expected outperformance beyond United Utilities’ guided "at least 100bps" improvement.
United Utilities Group, a major water and wastewater services provider in the United Kingdom (TADAWUL:4280), maintains its GBP11.75 price target from RBC Capital despite the rating downgrade.
In other recent news, United Utilities reported a 22% increase in underlying operating profit, reaching £634 million, despite facing higher costs due to inflationary pressures and growth in the asset base. The company also announced a 4% rise in its dividend per share to £51.9, consistent with its policy to grow dividends in line with CPIH inflation. However, United Utilities projected a decrease in Return on Regulated Equity (RoRE) to 1.1% real for fiscal year 2025, down from an average of 6.1% in the current Asset Management Plan period. Additionally, the company anticipates a net customer Outcome Delivery Incentives penalty for fiscal year 2026 and expects capital expenditures to surpass £1.5 billion. Analysts from RBC noted that the forward guidance might lead to an increase in consensus earnings for FY26, although they do not expect significant ODI outperformance.
Separately, UBS downgraded United Utilities’ stock rating from Buy to Neutral, adjusting the price target to 1,150p from 1,195p. This decision reflects changes in the weighted average cost of capital and expected returns from future price controls starting in 2030. UBS emphasized that the current share price already accounts for foreseeable factors, suggesting limited potential for stock appreciation without external economic changes. The firm also highlighted Pennon (LON:PNN) Group as a more attractive option in the UK water sector, maintaining a Buy rating for Pennon. United Utilities’ acceptance of final regulatory determinations and its dividend policy aligned with CPIH were key considerations in UBS’s reassessment.
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