Citi upgraded Pennon Group Plc (LON: PNN) from Neutral to Buy in a note this week, citing a valuation gap that presents an opportunity for investors.
The firm set a price target of 497p on the stock, telling investors it believes Pennon shares are currently trading at an excessive discount.
“After a short-lived bounce following its rights issue, Pennon shares have reverted to trading at a discount to RAB,” Citi noted, highlighting that the market appears to be overestimating operational risks.
Empfohlener Broker
Multi Asset Platform
According to Citi, the stock price implies an underperformance of more than £500 million—equivalent to a quarter of the company’s market capitalisation.
The bank explained that the UK water sector remains in a period of uncertainty, with regulatory pressures and operational challenges weighing on sentiment.
However, Citi believes the risk/reward outlook for Pennon is skewed to the upside. “We see a valuation gap under our framework, with the risk/reward balance skewed to the upside, providing an opportunity for a mean-reversion trade,” the analysts said.
Citi also pointed to the company’s improved financial position following its recent rights issue.
“With the company balance sheet now fixed post-right issue, we upgrade to Buy and open a 30-day positive catalyst watch ahead of the upcoming CMD on 13th March,” they stated.
Searching for the Perfect Broker?
Discover our top-recommended brokers for trading and investing in financial markets. Dive in and test their capabilities with complimentary demo accounts today!
- IG Top-tier regulation – Read our Review
- eToro Wide range of instruments available to trade – Read our Review
YOUR CAPITAL IS AT RISK. 76% OF RETAIL CFD ACCOUNTS LOSE MONEY
