Credit Suisse downgrades Pennon to ‘underperform’

CS said Pennon is the best-performing UK utility from a return on regulated equity perspective. "However, the shares more than price in this leadership, in our view," it said.

The bank left its 1,020p price target unchanged, suggesting around 21% downside to the shares.

Credit Suisse said Pennon’s balance sheet and dividend leave little headroom and that the buyback and capital return provide only temporary support.

It said the shares have performed well, up 32% year-to-date and outperforming the sector, in part because it has returned £1.5bn of capital via a dividend and is undertaking a £0.4bn buyback.

"Our view is that this is priced in, and the company has acknowledged it may cancel the buyback if it sees an attractive acquisition."

In the regulated sector, CS said it prefers ‘outperform’ rated National Grid and E.ON for regulatory asset base growth and exposure to the electrification theme.