Deutsche Bank cuts targets for utility stocks as Labour leadership speculation rises

(Sharecast News) - Deutsche Bank has downgraded its rating on National Grid from and lowered target prices for stocks across the UK-listed utilities sector, highlighting the risk of heightened political risk as speculation builds about a change in Labour leadership. "UK government policy has been highly supportive for UK utilities, encouraging record investment. However, prediction markets price in a high probability (>80%) of a new Labour Prime Minister being selected this year, with Andy Burnham the favourite (Oddschecker)," the bank said in a research note.

"Mr Burnham advocates for stronger 'public control' of UK water and energy utilities, creating some uncertainty. We lower our target prices."

Deutsche Bank cut National Grid from 'buy' to 'hold', and reduced its target price from 1,370p to 1,250p, saying that the stock trades at a "significant premium after adjusting for its extra 'fast money' allowances".

Also rated 'hold' is Severn Trent (TP cut to 3,150p from 3,300p), while 'buy' ratings were maintained for Pennon (TP to 620p from 650p), SSE (TP to 2,650p from 2,900p) and United Utilities (TP to 1,450p from 1,550p).

According to the bank, SSE and Pennon's shares look "very attractive", while United Utilities trades on "undemanding multiples".

SSE shares were down 0.4% by 0933 BST, while National Grid, Pennon, Severn Trent and United Utilities were trading between 1.2% to 1.6% lower.