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(Sharecast News) - Citi downgraded Pennon on Monday to 'neutral' from 'buy' but lifted the price target to 542p from 539p.
It noted that the shares are up around 30% in the last eight months, driven by a combination of re-rating from its lows post equity raise and recent downward gilt moves.
"While shares continue to trade at one of the lowest premium to RABs (7% on Mar-27) among European regulated utilities and the lowest in the UK, we see limited scope for near-term further re-rating," the bank said.
"If anything, we see some risks around UK Budget (rates/energy affordability read-across) and potential risk of new CEO revisiting operational targets on arrival.
"As we stand, Pennon shares are pricing in RoRE of circa 5.5% versus target of 7% (versus others of circa 6.5%) and the shares are also not yet pricing in the 30 bps of bonus returns upon reaching 4* EPA rating."
Citi said operational delivery will be key for further share price re-rating and this could take time.
At 0825 GMT, the shares were down 1.7% at 509.50p.
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