As the market continues its decline, one of the day's fallers is United Utilities.
Shares in the water company have dropped 6.5p to 787.5p following a downgrade from analysts at HSBC, who have moved their recommendation from neutral to underweight in the wake of a recent Ofwat report on price controls. HSBC said it was time to take profits in United, given that uncertainties remained following the watchdog's announcement. The bank said:
Ofwat has set out a scoring system that it illustrates in the report with scores of A through D where A is exceeding stakeholders' expectations through to D where substantially more evidence is required for it to understand companies' proposals and to give Ofwat "confidence that companies will deliver proposals that protect customer interests". This indicates that further dialogue is needed with companies in order to understand their business plan proposals. This includes outcomes and costs. We...conclude that more clarification is needed in a number of areas by United Utilities.
Issues for clarification (D rankings) for United Utilities include: Measurement and assurance of water outcomes; for retail – value for money and measurement and assurance; wastewater wholesale cost assessment where indicatively there is a 46% gap between Ofwat's initial financial threshold and United Utilities' business plan – a £1,131m difference that needs explaining.
The uncertainties identified by Ofwat around the current period adjustments it will have to make in 2015, which we discuss above, do not provide sufficient assurance to us that a dividend cut is avoidable.
