United Utilities boosted by SocGen upgrade

United Utilities got a boost on Thursday as Societe Generale upgraded the stock to ‘buy’ from ‘hold’, noting that recent share price weakness now implies a total shareholder return of 18%.

The stock has underperformed the FTSE 100 by 11% since the 2 October Tory Party conference.

SocGen said European regulated utilities have suffered recently on the back of the “taper tantrum” from press comments regarding the European Central Bank’s bond-buying programme and sterling weakness resulting from comments at the Tory Party Conference.

During this time, UU has been the worst performer among UK utilities despite the benefit which should accrue from higher inflation, it said.

“While nominal gilt yields have recently risen (+25 basis points), they remain 40bp below pre-Brexit levels, and inflation expectations have picked up,” SocGen said.

“We estimate the effect of higher inflation is equivalent to 1-2% per annum on the UU equity value for every 100 basis points of higher than expected RPI, and therefore on an absolute basis higher inflation and lower real gilt yields should be viewed as value accretive.”

At 1017 BST, the shares were up 1.8% to 931p.