Broker tips: Severn Trent, United Utilities, Countryside Properties, Lloyds

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Broker tips: Severn Trent, United Utilities, Countryside Properties, Lloyds

Tue, 16 May 2017
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Broker tips: Severn Trent, United Utilities, Countryside Properties, Lloyds

(ShareCast News) - Deutsche Bank downgraded its recommendation on shares of United Utilities and Severn Trent ahead of the 2019 price review.
Despite further increases in the share prices of UK water stocks year-to-date, on the back of a decade-long bull run, that review would come incerasingly into focus towards the end of 2017, the broker said.

Its analysts downgraded their view on United Utilities and Severn from 'buy' to 'hold', but left Pennon at a 'buy'.

However, they raised their targets on the former of those two from 1,000p and 2,300p to 1,050p and 2,450p, respectively.

Shares in United and Severn, Deutsche Bank said, also appeared to be at 'fair value'.

As for Pennon, there might still be scope for the Exeter-based company to reassure on the outlook for Viridor.

Key in terms of the upcoming review would be the new political backdrop, with the focus for the 2020-25 review expected to be on affordability.

Berenberg initiated coverage of Countryside Properties at a 'buy' ahead of an expected announcement by management to ramp up the business.

The key to its investment thesis was that the homebuilder already had the landbank, pipeline and capital in place for a larger business.

Its partnership arm, which worked with local authorities to regenerate public land, was set to benefit from the growing need for social housing.

It was also likely to be "far less cyclical" than 'normal' housebuilding, Berenberg said, sporting a "sustainable" return on capital employed of 50%.

ROCE in Partnerships was 70% in 2016.

"Management is currently reviewing its five-year targets, and we expect a significant increase in ambition."

Countryside also enjoyed a comfortable funding position, with net cash and a £300m bank facility with which to cover peak net debt of about £130m and its growth trajectory, Deutsche Bank said.

Analysts at Investec reiterated their 'buy' stance on shares of Lloyds ahead of the state's expected full exit from the lender later in the week.

Despite the fact that the shares had treaded water since Antonio Horta Osorio took the helm in November 2010, due to the drag from £17.4bn of PPI provisions over that same time span, "its outlook is set fair", the broker's Ian Gordon said.

Gordon reiterated his view that Lloyds was a 'no-growth' bank, but with net negative exceptionals continuing to fall by the wayside, from £6.5bn in 2015 to £3.6bn in 2016 and £1.9bn in 2017, its returns and ability to pay dividends were set to recover sharply.

The analyst also reaffirmed his view that other analysts were being "much too pessimistic" on Lloyds's net interest margins, impairments and dividends per share.

He also nudged his target price on the stock from 74.0p to 75.0p.

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