UK Water: Treading Water - remain Neutral on the subsector

While we appreciate UK water stocks are cheap relative to electricity network peers on a RCV premium basis, we do not see any near-term catalysts driving a meaningful re-rating for the companies. While we believe the regulator's initial framework document for PR29 had encouraging signs, including incorporating recommendations from the Cunliffe review, we believe that investors will need to see concrete evidence of a focus on investability and higher risk-adjusted returns to meaningfully engage with the sector. We look forward to the publication of the Water Transition Plan, as well as how the water sector fits into the government's 10 year plan later this year. Higher inflation expectations should also underpin higher RoRE expectations which should be supportive for the sector. We continue to prefer UK electricity networks owing to higher growth and return expectations backed by more supportive, visible regulation, and remain Neutral on UK Water subsector. Our estimate changes: We upda