Severn Trent shares fall on Morgan Stanley rating cut to 'underweight'

LONDON (ShareCast) - Shares (Berlin: DI6.BE - news) in UK water utility firm Severn Trent (Other OTC: STRNY - news) fell 1.6% on Wednesday after getting a cut to its rating to 'underweight' from 'equalweight' by Morgan Stanley (Xetra: 885836 - news) on "valuation grounds". The bank said while the company's management was driving improved performance, this is already factored into the share price. "We see the valuation as full, and thus downgrade (our rating)," said Morgan Stanley.

Despite the rating downgrade, Morgan Stanley said that management change at Severn Trent is driving cultural change, which should drive operational outperformance.

"Severn Trent will deliver a growing dividend and solid asset base growth, (despite) these positives, and more, are already reflected in the price," added the bank.

That said, "if Severn Trent can create value in its services business, or its planned renewable (solar) investments, this could deliver upside that we do not currently include in our valuation analysis," Morgan Stanley said.