Broker snap: Nomura lifts targets for utilities after Budget

22nd Mar 2012 10:26

While Nomura has maintained a bearish view on the UK utilities sector, yesterday's Budget did include a cut in corporation tax leading the broker to upgrade its target prices for utilities under its coverage.Chancellor of the Exchequer George Osborne announced yesterday that the planned sequence of cuts in corporation tax would be accelerated and that the rate would be 24% from April 2012, 23% from April 2013 and 22% from April 2015. Nomura thinks this should be a "small positive for UK utilities paying majority UK corporation tax."The government is also wanting to encourage investment in infrastructure, including funding from international pension funds and sovereign wealth funds. "We think this is supportive for companies planning to make large infrastructure investments such as National Grid," Nomura said.However, with the Chancellor saying that environmental objectives need to be balanced with costs, Nomura says that this doesn't sound supportive for the potential subsidy review on Renewable Obligation Certificates, or ROCs (currently underway for Drax), or other renewables projects including offshore wind.Meanwhile, the government is to introduce a package of oil and gas measures (including a contractual approach to end the uncertainty over the tax deductibility on decommissioning costs), which Nomura believes is a small positive for Centrica. It is also extending the amount and scope of the existing small field allowance and introducing a new filed allowance targeted at the West of Shetland area - "we understand that Centrica does not have any assets in this region," the broker added.Nomura made the following changes to its ratings/reiterations in the utilities sector today:Centrica: target raised from 350p to 355p, neutral rating keptDrax: target raised from 485p to 495p, reduce rating keptNational Grid: buy rating and 705p target price maintainedPennon Group: neutral rating and 755p target price maintainedSSE: target raised from 1,405p to 1,425p, reduce rating keptSevern Trent: target raised from 1,640p to 1,645p, neutral rating keptUnited Utilities: buy rating and 695p target price maintained.BC