UBS Increases Price Target for Pennon Group Plc (PNN:LN) to GBP 8.90, Reaffirms Buy Rating
In a recent update, UBS has raised the price target for Pennon Group Plc (PNN:LN) (OTC: PEGRF) to GBP 8.90, up from the previous GBP 8.70, while maintaining its Buy rating on the stock. This adjustment comes as UBS believes that Pennon Group is currently trading at a 2% discount to its March 2025 Regulatory Asset Base (RAB) and is likely to experience a smaller dividend cut than what the market is anticipating.
As a water utility and waste management company, Pennon Group is expected to see a dividend reduction of around 35% by the market. However, UBS forecasts a more modest cut of 25%, based on historical trends. This more optimistic outlook on dividends is expected to have a lesser impact on shareholder returns.
UBS also highlights the possibility that Pennon Group may need to undertake capital measures to maintain its financial health. This could involve a capital raise of approximately GBP 300 million, similar to the actions taken by Severn Trent in September 2023. Such a move is seen as a prudent step to ensure the company's stability.
Overall, UBS's Buy rating reflects its confidence in Pennon Group's financial strategy and market position. The new price target of GBP 8.90 takes into consideration the expected dividend cut and potential equity raise, positioning the company's stock performance against its peers.
In conclusion, investors should consider UBS's outlook on Pennon Group as a positive signal for the company's future prospects. The anticipated dividend cut may not be as severe as initially thought, and the potential capital raise could strengthen the company's financial position. This analysis provides valuable insights for investors looking to make informed decisions in the financial market.