RBC cuts United Utilities to 'sector perform' on valuation

Royal Bank of Canada downgraded United Utilities to 'sector perform' after the water company's shares outperformed rival Severn Trent.

The FTSE 100 group could be "one to watch" during the current AMP7 regulatory period period with the potential to close the gap on listed peers for return on equity, RBC analysts said.

But United Utilities shares have outperformed Severn Trent's by about 5% since RBC's last update, leaving less upside, analyst Alexander Wheeler and colleagues said. The analysts reduced their rating from 'outperform' with an unchanged price target of 950p a share.

"We think UU may surprise the market in AMP7 but we await further clarity on AMP7 [returns] before updating our estimates," Wheeler wrote in a note to clients. "As such our valuation looks relatively full."

United Utilities shares rose 0.6% to £13.74.5 at 13:24 GMT.