Downgrade for United Utilities over fears for old power markets

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BARCLAYS Capital downgraded water utility United Utilities Group and cut its price targets on stocks of several European utilities because it expects declining power markets and pressure on credit to hurt them.

Increased competition from new thermal and renewable capacity across Europe is expected to squeeze profits for existing coal and gas generators, the brokerage said. “We expect margins for incumbent power generators to continue to deteriorate across much of Europe,” analysts led by Peter Bisztyga wrote in a note.

Germany has the worst outlook over 2012-15, Barclays said, and it “remains concerned” about Italy, where weak demand and overcapacity is expected to affect electricity prices in the near term.

Germany’s spot market, which declined in June due to a forecast surge in wind power production and a mild rise in solar volumes in Europe’s biggest power market, has been pressurising output in the rest of the continent.

The brokerage said the UK, which is expected to see a strong recovery from 2013, is the most attractive power market in western Europe.

Barclays, however, downgraded United Utilities, to “underweight” from “equalweight” on valuations.