Broker tips: Pennon, Severn Trent, Lancashire Holdings

RBC Capital Markets downgraded Pennon to 'sector perform' from 'outperform' and maintained their target price on the stock at 975.0p, stating the valuation was now more balanced.

"Pennon continues to focus on its environmental performance as the market awaits the outcome of the ongoing investigation," it said.

"We believe the business will continue to be one of the top RoRE performers in the sector, however we downgrade to sector perform on valuation as PNN has recovered some of its underperformance versus peers."

The Canadian bank also downgraded Severn Trent to 'sector perform' from 'outperform', lifting the price target to 3,000.0p from 2,900.0p, as it said there was less potential for upside at current levels.

"We like SVT as a business and believe that growth coupled with a strong focus on ODIs and the 4* EPA status will position the company well into AMP8," it said.

However, the bank opted to downgrade the shares "following a recovery in the share price and a lack of visible near-term catalysts".

Analysts at Berenberg raised their target price on insurance firm Lancashire Holdings from 645.0p to 770.0p on Monday, stating the group was entering 2023 from "a position of strength".

Berenberg said the key message from Lancashire's recent earnings call was "more margin in underwriting, more margin in investment income in 2023".

Lancashire has "clearly had room" to further expand its property catastrophe footprint given its 300% Bermuda solvency capital requirement at January renewals, said Berenberg.

However, the analysts noted that management was "adamant" about not materially changing the shape, balance and improved business mix of the portfolio it has "painstakingly built" over the past few years.

The German bank highlighted that the broader business mix and growth in non-catastrophe exposed lines helped Lancashire absorb the impact of a $125.0bn natural catastrophe year and losses stemming from the Ukraine war.

"We believe Lancashire enters 2023 from a position a strength and the expected profitability of the business is now higher. We roll forward our estimates and raise our price target to 770p. The shares trade on 5.8x FY 2024E EPS and 1.23x FY 2023 P/B," said Berenberg, which reiterated its 'buy' rating on the stock.