Market report: UBS pours cold water on deal-hungry Severn Trent

Utilities firm Severn Trent might be the frontrunner in the water fight over Dee Valley, but the takeover will not be enough to prevent the Footsie group’s profits from trickling lower.

That’s according to tipsters at UBS, whose gloomy prediction, accompanied by a downgrade from Neutral to Sell, sent shares in Severn Trent down 23p to 2211p.

The group’s £87 million bid, which was extended by two weeks earlier to give shareholders more time to accept the offer, faces competition from Ancala.

It has left its lower offer on the table until a High Court ruling next week to decide whether local residents, who have bought shares in an effort to block the takeover of the Welsh firm, should be allowed a say.

UBS’s analysts suggested on Thursday that even if Severn Trent is successful in its takeover attempt, profits will still slip this year and next, arguing that the deal is “positive but far from game-changing”.

They added that “falling returns seem inevitable” as operational targets from regulator Ofwat get tougher, putting at risk around £15 million of incentives worth more than 5% of its profits.

The FTSE 100 continued its lacklustre performance on Thursday as it lost 42.61 points at 7205.00 as the pound’s see-sawing continued and made gains today after yesterday’s losses.

Although starting the day in the red, Pearson recovered to trade 3.5p higher at 576.5p even as the analyst downgrades flew in from all directions.

The most bearish of all came from Liberum, which tipped the shares to slump to 360p by the end of the year, giving the ailing education business a market value of less than £3 billion, which would ensure its relegation from the Footsie.

Investors lost their thirst for shares in Revolution Bars after the trading update from the bars group underwhelmed the market.

First-half sales in venues which have been open a year or longer grew by a disappointing 2%: shares sank 6.3p to 215.7p.

Publishing group Future, which snapped up several magazine titles including Metal Hammer and Classic Rock last week, appeared to impress investors at its capital markets day yesterday as the shares edged up 0.32p, or 2.5%, to 13.07p.

Posh teapot and dishes maker Portmeirion rose 32.25p, or 3.4%, to 979.75p after it said annual profits would be “slightly ahead of market expectations” despite tough trading in South Korea and India.

And a profit warning left shares in marketing services group St Ives reeling 47p, or 37%, lower at 79.5p.