Broker snap: Pennon hit by Credit Suisse downgrade

13th Sep 2013 10:52

The share price of utilities group Pennon was dampened on Friday morning after a downgrade by Credit Suisse from 'neutral' to 'underperform', which raised concerns about the company's waste-management business, Viridor.The target price for the stock was trimmed from 670p to 610p.In a research report, the bank said it is increasingly concerned that pricing pressure could materialise on Viridor's energy-from-waste (EfW) facilities, given that supply is increasing and demand is falling."We see the market pricing in c50% value accretion on Viridor's pipeline (vs Credit Suisse forecasts of c10-15%), and overlooking material downside risk," it explained.Analysts also said they see downside to the UK water sector in general ahead of the next Ofwat five-year pricing review in 2014. They highlighted that on average the sector underperforms the FTSE 100 by around 7% in year four of a regulatory period and by around 9% in year five.However, Pennon has outperformed by around 15% in the fiscal year to date. "Regulatory uncertainty is increasing, but we still see peak valuations," the bank said.Credit Suisse's earnings estimates for Pennon are around 3% below consensus forecasts for the year ending March 2014, and 8% below consensus for the year ending 2015. The company is due to report its first-half numbers on November 15th.The stock was down 3.91% at 698.08p by 11:05 on Friday.BC