MARKET REPORT: Broker upgrades flip the tide for water shares

Water companies flowed higher as two banks upgraded ratings within the sector to reflect hopes of a more favourable pricing agreement with regulators.

Citi said it expects a constructive set of proposals from watchdog Ofwat on December 19.

JP Morgan Cazenove also expects significant improvements in regulatory allowances, which should drive a re-rating of the UK water sector. 

Bills ruling: Citi said it expects water firms to get a boost with a constructive set of proposals from watchdog Ofwat on December 19

Reflecting their views, the Citi analysts upgraded United Utilities to buy and hiked Severn Trent to neutral, while keeping Pennon at neutral.

Meanwhile the JP Morgan analysts upgraded Severn Trent to overweight and raised their rating for Pennon to overweight. The analysts maintained an overweight rating on United Utilities.

In reaction, on the FTSE 100, Severn Trent gained 3 per cent, or 78p, at 2648p, United Utilities added 3.2 per cent, or 32.5p, at 1059.5p, and FTSE 250-listed Pennon rose 3 per cent, or 16p, to 555p.

As investors awaited the outcome of the US Presidential election, as well as interest rate decisions from both the Bank of England and the Federal Reserve this week, markets were cautious.

The FTSE 100 index fell 0.14 per cent, or 11.85 points, to 8172.39 and the FTSE 250 lost 0.45 per cent, or 91.25 points, to 20,370.04.

Aerospace manufacturer Melrose gained 5.2 per cent, or 24.6p, to 498.8p after analysts at Citi reiterated a high conviction buy rating, seeing a valuation of 600p to 800p per share based on a strong cash flow outlook.

Stock Watch -Hornby

It was full steam ahead for Scalextric cars and model trains group Hornby as it announced the sale of a loss-making subsidiary.

LCD Enterprises has been sold to EKD Enterprises for £1.38m.

Hornby, which is financially backed by Frasers Group and counts entrepreneur Mike Ashley as a consultant, said the disposal was part of a streamlining of the group’s business.

News of the disposal sent Hornby up 2.8pc, or 0.5p,

to 18.5p.

Inter-dealer broker TP ICAP led the mid-cap gainers, advancing 7 per cent, or 16p, to 243.5p as it reported record third-quarter revenue, which rose 10 per cent after strong performances from its Global Broking and Liquidnet businesses.

Workplace provider IWG also found gains, up 3.1 per cent, or 5p, to 166.1p, as it reported a robust expansion in its managed and franchised segment, which achieved a 19 per cent rise in third-quarter revenue, though overall revenue only rose by 2 per cent year-on-year.

Among the small caps, newspaper wholesaler Smiths News surged 8.4 per cent, or 4.8p, to 61.8p as it announced solid full year results, with revenue increasing by 1.1 per cent year-on-year boosted by strong sales during Euro 2024 and an additional trading week. 

On AIM, Aferian soared by 85.2 per cent, or 2.8p, to 6.05p after the business-to-business video streaming firm said it expects to post around a 20 per cent jump in second-half revenue compared to the first half. 

The group also anticipates reporting positive adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA) in the second half.

Bigblu Broadband was another big performer, jumping 47.1 per cent, or 12p, to 37.5p after confirming Australian media speculation that it is in discussions with Melbourne-based alternative investment manager Salter Brothers regarding a potential transaction for its SkyMesh subsidiary.

Mineral explorer Kodal Minerals dropped 14.1 per cent, or 0.06p, to 0.34p as it revealed a dispute with Chinese partner Hainan Mining over taxes payable in Mali.