RBC picks National Grid and SSE as top utility stocks

23rd Aug 2023 10:13

(Sharecast News) - RBC has cut its target prices for a host of UK utility stocks, but highlighted networks National Grid and SSE as its top picks in the sector.

The broker reiterated its 'outperform' rating for both stocks, but kept Pennon Group, Severn Trent and United Utilities at 'sector perform'.

"We see significant opportunity in NG and SSE as current valuations fail to differentiate between the UK network and water sectors. Higher and more visible growth, alongside a lower level of political focus are central to our positive view on networks," the broker said in a research note on Wednesday.

As for the water sector, RBC said the upcoming PR24 price review - which covers the period 2025 to 2030 - should give investors more clarity on companies' regulatory capital value. "However, we don't expect to see any update on allowed returns or for companies to give an indication on their ability to outperform at this early stage in the regulatory process," the broker added.

National Grid was given a target price of 1,250p (unchanged), while Pennon's was cut from 975p to 875p, Severn Trent's was cut from 3,000p to 2,650p, SSE's was cut from 2,050p to 1,950p and United Utilities' was cut from 1,100p to 1,075p.