Newspaper article The Evening Standard (London, England)

Water Firms Wash-Out

Newspaper article The Evening Standard (London, England)

Water Firms Wash-Out

Article excerpt

Byline: Mickey Clark MARKET ROUND-UP

IRONIC isn't it? But on one of the hottest days of the year, the water companies have suddenly found themselves out of favour among stock market investors.

They are often seen as a defensive play in times of trouble, but JPMorgan thinks the water companies may have had their day, partly because of an easing of inflationary pressures. So it is urging clients to start switching into the power generators.

The water regulator Ofwat is due to make known its views on the next round of pricing within a few weeks, and JPM sees scope for only a small increase. Returns could be set at a level allowing companies to make only small returns.

It has raised Pennon, 3p firmer at 488p, from underweight to neutral, reflecting mainly its fast-growing Viridor waste disposal business. But United Utilities is cut from overweight to neutral. The shares responded with a dive of 9p at 500p, making them the biggest blue-chip fallers on the day. Severn Trent was another casualty, dropping 14p to 1104p after JPM slashed its target on the shares from 1490p to 1040p.

Shares generally were a touch softer for choice despite attempts at windowdressing by institutions as the second quarter drew to a close. The market has rallied from its low point in March, but has been unable to claw back the big losses suffered by investors last year in BG and BP has been overdone, and insists investors should now rebuild their positions in both stocks, which it continues to rate overweight.

The focus on BG Group should now be on the Corcovado-2 and Abarre West wells -- the two largest wells drilled by BG and worth up to 150p a share.

At BP, there should be continued evidence of the restructuring, while limited downstream exposure relative to Shell leaves the company better positioned to endure a tricky quarter for the group. …

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