Broker snap: Rally in water stocks to continue, says CS

27th May 2009 12:08

Brokers are queuing up to reappraise the water utility companies ahead of the sector's results season, which starts this week.After Merrill Lynch weighed in yesterday with downgrades for Pennon and Northumbrian Water, Credit Suisse has dealt another blow to Pennon, chopping its price target from 667p to 617p.It has, however, taken a more optimistic view of Northumbrian Water, which it has upgraded to 'outperform' from 'neutral', although the price target has been trimmed from 310p to 301p.Severn Trent also gets an upgrade, from 'underperform' to 'neutral', though this, too, is accompanied by a downward revision of the target price, from 1319p to 1210p. Completing the review of the sector's big four, United Utilities sees its price target moved down to 609p from 671p.The Swiss group believes the rally in water stocks is set to continue, and expects United Utilities to show the strongest growth in earnings before interest and tax in the sector. Credit Suisse also likes United Utilities' dividend. The stock is yielding 8.6%, suggesting the market fears the divi may not be maintained, but Credit Suisse believes the dividend level is sustainable and 'could help to justify a higher valuation going into the next price review.'