First-half figures from United Utilities (UU) arrive next week, with the shares having fallen 18% from their summer peak above £10.
Utilities firms have been hit hard recently by the bond market sell-off, as investors shift some money from utilities to bonds as a result of the move higher in yields. There was perhaps some expectation that Donald Trump’s victory would decrease the chances of higher interest rates, but this hope has diminished somewhat. Nonetheless, the income perspective should not be overlooked here, and while a liberalisation of the water industry could help the business, it is true that most investors continue to use utilities as income sources. In addition, the lower volatility offered by utilities is another point in their favour.
Shares in UU have gone nowhere since the end of 2014, with the early 2015 rally to £10.44 then seeing a drop. The shares hit this level (and did move above it) in July 2016, but since then they have continued to fall, moving below the £8.84 low of February. They have bounced since then but so far are not able to close above this level. A further move lower would test the August 2015 low towards £8.16.