U.K. Water Companies ‘in Sweet Spot’ in Current Market, UBS Says

U.K. water companies “will remain in a sweet spot as long as the current lackluster macro-environment persists,” with Pennon Group Plc considered the most likely takeover candidate, UBS analysts said in a note.

Similar M&A speculation persists as well about Severn Trent Plc, one of the U.K.’s three publicly traded companies, analysts including Stephen Hunt said in the note today. Possible upside is about 18 percent for Pennon and 35 percent for Severn Trent in the event of M&A, the note said.

The valuation discount at United Utilities Plc, the U.K.’s largest publicly traded water company, is considered excessive, with UBS initiating coverage of the company at a ‘buy,’ the analysts said. Safe returns and consistent outperformance are likely for U.K. water companies, UBS said.

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