United Utilities share price assumes too much Covid-19 risk, RBC says
By Sean Farrell
Date: Tuesday 07 Apr 2020
(Sharecast News) - United Utilities' share price overestimates the risks of the Covid-19 crisis to the company, Royal Bank of Canada said as it upgraded the water and waste management group to 'outperform'.
As a regulated business, United should get through the coronavirus uncertainty relatively unharmed and with its dividend intact, RBC analysts said.
Bad debts could be more of a concern because United's customers in the north west of England have lower income per head than other regions but the company has reduced its bad debt charge in the runup to the crisis, RBC said. United is incorrectly priced close to its regulatory capital value, not reflecting its strong position in an uncertain market, RBC said.
The company has strong liquidity with visibility over two years and visible revenue over five years, RBC said. The bank raised its rating to 'outperform' from 'sector perform" and reduced its price target to 975p from £10.25. The shares, up 2.3% to 845p at 15:23 BST, have fallen by 20% since 19 February.
"The current UU share price does not reflect the relatively low Covid-19 risk within the business," Alexander Wheeler and his fellow analysts wrote in a note to clients. "We believe that UU has the balance sheet to deal with near term Covid-19 issues and we see dividends as secure."
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