Two of the City's heavyweight brokers are standing behind Pennon Group's radical overhaul, with buy ratings.
Citi and Deutsche Bank offer some reassurance to shareholders digesting a £550 million rights issue and a 30% dividend cut announced on Wednesday.
Citi calculates a theoretical ex-rights price of 388 pence from the deal terms, which offer seven new shares for every 15 held at 250 pence.
And it argues the income case still stacks up at that level.
The rebased £125 million annual dividend yields close to 5% against the ex-rights price, comparing favourably with the approximately 4% on offer at sector peers Severn Trent and United Utilities.
Citi sets a 552p target, with Deutsche at 550 pence, against a last closing price of 361.2 pence.
Both banks broadly endorse the strategy, which channels the fundraising proceeds into £1 billion of additional spending during the current regulatory period.
This will take total AMP8 investment to £3.6 billion, and targets gearing no higher than 65% of the regulated asset base.
Citi notes, however, that the increased spending still leaves Pennon growing its regulated asset base at 7% to 8% annually, below the 9% to 10% peers are achieving.
Deutsche warns recovery thesis rests entirely on operational execution, and that credibility will have to be earned.
