Dividend cut fears hit United Utilities

United Utilities was among London's sharpest fallers as analysts raised fears of a dividend cut.

RBC saw United's payout was at risk as takeover hopes recede and regulatory threats rise with regulator Ofwat due to deliver draft plans for price controls next month.

Premiums to regulatory capital value for water companies have tended to fall to zero as Ofwat approaches its final determination, which this time around is due in winter 2014, RBC said.

Yet it saw United trading at an 8 per cent premium, even though the North West Water owner was the sector's most vulnerable to the changes.

United has already been lobbying against Ofwat's plans to base retail price caps on average service costs, which RBC reckoned would cut group earnings by 4 per cent.

Its analysts also highlighted recent comments from Ofwat chairman Jonson Cox, which they said "heightened the risk that companies will somehow have to share financing outperformance more fully with customers".

Meanwhile, Severn Trent 's rejection this month of a bid at a 37 per cent premium to regulated asset value would give Ofwat the ammunition needed to argue that regulatory settlements have been too generous, RBC said.

With its permitted returns clipped, United would need to cut its 2015 dividend by at least 15 per cent to maintain an investment grade credit rating, it forecast.

United faded 4.7 per cent to 692p, having begun trading without rights to a 22.88p dividend.

Severn, which was also ex dividend, fell 3.9 per cent to £16.96.

The wider market drifted on low volume, leaving the FTSE 100 with its first decline in five days. The index fell 25.39 points, or 0.4 per cent, to 6,348.82.

A day after delivering an in-line trading update, Aggreko lost 5.3 per cent to £16.60 after UBS cut the stock from its "buy" list.

Weaker emerging markets growth and sterling's declines were headwinds for 2014 earnings, it said.

BT Group was down 1.8 per cent to 313.7p on the surprise news that Ian Livingston was leaving after five years as chief executive to become minister of state for trade and investment.

Vodafone lost 1.6 per cent to 181.5p on reports that it had entered a bidding war with Liberty Global for Germany's Kabel Deutschland.

SABMiller gained 1 per cent to £32.75 after lifting sales and margin targets for its North American business at an investment seminar.

Nevertheless, Morgan Stanley trimmed 2014 earnings forecasts as it saw the depreciation of emerging markets currencies outweighing the improving Americas outlook.

Segro took on 2 per cent to 285.8p on the back of an upgrade from Goldman Sachs.

It saw the business park developer as a play on internet shopping as it anticipated a shortage of urban warehouse space needed for faster delivery.

Informa rose 3.6 per cent to 495.1p and UBM took on 2.7 per cent to 685.5p after after German publisher Springer Science agreed to be bought by BC Partners for €3.3bn, a higher price tag than expected.

Springer's takeover by a third successive private equity group would support the theory that sector consolidation can drive future returns, said UBS.

"Should Informa sell its academic business (allowing substantial cost synergies to be realised) and return the proceeds to shareholders, we think the potential EPS enhancement could be 20 per cent plus," it said.

Merrill Lynch "buy" advice helped Spirent Communications, the network equipment maker, gain 3.8 per cent to 135.4p.

Micro Focus, the legacy IT specialist, jumped 9.7 per cent to 709.5p after its results beat expectations.

Coal miner New World Resources dropped 12.5 per cent to 80p.

Long-term NWR bear Merrill Lynch cut its price target to 19p to reflect reduced Chinese steel production weighing on coking coal prices.

Man Group lost 2.4 per cent to 87.4p after reporting a fourth straight weekly decline for its main hedge fund, which has lost nearly 14 per cent since early May.

The slump means 2014 consensus forecasts now look around 40 per cent too high, said Morgan Stanley.

PZ Cussons dropped 5.6 per cent to 372.9p on word that an investor had sold approximately 7m shares in the soap maker, around 1 per cent of total, at just 350p apiece.

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