Citigroup upgraded British water utilities Pennon and Severn Trent to "buy," citing attractive valuations and a hedge against geopolitical uncertainty. Citi raised Pennon's target to £6.28, implying 12.9% upside, and Severn Trent's to £32.11, for an 11.7% gain. Both trades below the sector's average regulatory asset base premium.

The move positions these firms as rare value pockets in a fully valued market. Pennon's £2.6 billion market cap and incoming CEO Keith Haslett by June 30 signal operational catalysts. Severn Trent's £8.7 billion valuation and 6.5% equity RAB growth offer the highest growth among listed peers, per Citi.

Analysts adjusted earnings forecasts after first-half results, projecting rising dividends. The upgrades precede the UK's Water White Paper and Strategic Policy Statement, expected to lay groundwork for sector transformation. Citi cited defensive qualities amid tensions over Greenland’s sovereignty, noting recovery will be a long process.