- Pennon Group
- 02 May 2024 17:20:52
Source: Sharecast
The bank said that all three companies' business plans "present an unprecedented opportunity for multi-year growth".
"This, alongside a potential for reasonable investment returns, outweighs our previous concerns about political/regulatory risk."
Severn Trent was lifted to ‘buy’ from ‘underperform’ and the price target to 2,950p from 2,100p.
"On SVT, our view is that the recent £1bn equity raise has bolstered their balance sheet significantly, making them well-placed to deliver their PR24 business plans which features 6% nominal RCV growth CAGR across the next regulatory period," it said.
"We estimate SVT can maintain its current dividend policy too, and we assume 300bps of regulatory outperformance."
Jefferies said that such outperformance looks achievable when compared to historical outperformance of more than 4%.
Pennon was also boosted to ‘buy’ from ‘underperform’ and the target price to 850p from 700p.
"We believe PNN's 2025-30 business plan offers an attractive 7% per annum nominal growth in regulatory capital value (RCV).
"We see the proposed plan, if accepted by Ofwat, as financeable without the need to raise new equity or a dividend cut. Our key assumption here is that PNN will be able to earn an extra 200bps return above the base regulated allowance, through cost and operational outperformance."
Jefferies noted that Pennon is currently trading at 4% discount to FY23/24 RCV and said this was an attractive entry point for the company.
The bank upgraded United Utilities to ‘buy’ from ‘hold’ and upped the price target to 1,200p from 960p.
"We see UU's business plan as offering sector-leading nominal RCV growth, with projected CAGR of 8% across the next regulatory period (FY24/25 to FY29/30)," it said.
Jefferies said it estimates that the company can maintain healthy levels of gearing throughout and maintain their current dividend policy, assuming 250 basis points RoRE (return on retained earnings) outperformance.
“"We do not see a need for the company to raise equity funding even though it is a scenario that is presented in their business plan," it added.
