This report is an updated version of the report published on 05 June 2024 at 07:40 AM GMT+1.

Section 1.0. UK Utilities Sector Landscape, Trends & SWOT Analysis

Section 1.1. Utilities Sector Landscape

The United Kingdom’s utilities sector comprises of water, electricity, and gas markets. Dividend focused investors get shelter in the utility sector usually since they have predictable cash flows, and the business model is non-cyclical in nature. In the UK, the regulator Ofgem (The Office of Gas and Electricity Markets) controls energy prices in the form of a price cap. It has been witnessed that the energy prices have shot up due to the increased consumption after Covid-19 pandemic led restrictions and ongoing war in Ukraine. Kalkine’s Sector Report covers the Investment Summary, Sector Landscape, Trends & SWOT Analysis, Risks, Recent Business Updates along with the Valuation, Target Price, and Recommendation on the stock.

Section 1.2. Trends in the Utilities Sector

Section 1.3. SWOT Analysis

Section 2.0. Sector Risks & Opportunities

Section 2.1. Risk Exposures to Utilities Sector

Section 2.2. UK Utilities Sector Outlook

The outlook for utilities sector has improved in 2024 compared to the projections made in 2023. It is underpinned by enhanced water networks in the UK which were seen deteriorating in prior years. Utilities that are engaged in generations are high probable to record earnings and operation cash flows during 2024, regardless of elevated interest rates and rising input costs. These robust projections are supported by easing pressure from market intervention. Compared to the prior two years, electricity prices are forecasted to downtrend in 2024 while stabilizing above historical levels, resulting in strong cash generation. Predominantly, the network of higher capex intensity is forecasted in 2024 to follow a selective approach to newly renewable projects by developing hydrogen, small nuclear reactors, and carbon capture technologies.

After gaining insights into the Utility sector, we will look at the business model of two relevant players listed on the London Stock Exchange.

Section 3.0. Ceres Power Holdings PLC (LSE: CWR) (Speculative Buy at GBX 224.00, closing market price of 04 June 2024)

3.1 Company Details

3.2. Key Metrics in Pictures

3.3 Valuation and Technical Guidance

Section 4.0: National Grid PLC (LSE: NG.) (Buy at GBX 911.80, closing price as on 04 June 2024)

4.1 Company Details

4.2. Key Metrics in Pictures

4.3 Valuation and Technical Guidance

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance level is 04 June 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and/ or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Note 6: Dividend Yield may vary as per the stock price movement.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.