Broker snap: Evolution sees greater risk for water firms

27th Nov 2009 10:55

Evolution Securities has downgraded its recommendation on Pennon and Northumbrian from 'buy' to 'add' as it thinks the water firms face greater regulatory risks despite the relaxation of Ofwat's determination on how much they can charge customers over the next five years.Evolution thinks the firms will very likely be able to maintain dividend growth of 3% between 2010 and 2015, unlike peers Severn Trent and United Utilities, which will need dividend cuts of 12% and 25% respectively in 2010/11.All the same, Evolution keeps its 'buy' ratings on Severn and United. It thinks the two stocks will not need to launch rights issues, as had been feared previously.Ofwat said yesterday that average annual bills will have to fall by £3 to £340 between 2010 and 2015, which is more favourable to the water companies than the £14 a year price cut to £330 suggested in July.