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Falling water bills might be good news for householders, but they may turn out to be extremely expensive for some stock-market investors.
Citigroup today warns that shareholders of United Utilities, down 2p at 464p, which covers Wales, Scotland and northern parts of England, could suffer a dividend cut or may even have to dig deep into their pockets to stump up extra cash for the business.
It says industry regulator Ofwat's draft proposals published last week will put UK water companies under strain if implemented unchanged, leaving little on the table for investors.
"We believe the proposals are tight but manageable for Pennon and Severn Trent, but United Utilities may have to raise equity and/or cut dividends," warns Peter Atherton at Citigroup.
The broker has conducted its stress test of Ofwat's assumptions and says the lack of headroom creates concern should the macroeconomic environment adversely affect areas such as deflation and energy costs.
Even small variances from the assumptions could be significant for investors.
The utility sector across Europe has embarked on a "truly gigantic" investment programme over the next decade, but Ofwat's proposals could see the water companies crowded out in the search for capital as the risk-reward balance becomes less attractive for investors.
Citigroup has a hold rating on UU but has moved it from low risk to medium risk and slashed its target for the shares from 650p to 492p.
It has also lowered its target on Pennon, 9½p firmer at 468¾p, from 500p to 480p and for Severn Trent, ½p off 999½p, from 1545p to 1262p.
Elsewhere, leading shares showed signs of running out of steam. Earlier in the session they climbed back above the 4600 level to reach their highest level since 6 January.
That was the FTSE 100's best performance since the tail-end of 2003.
In the event, the profit takers moved in leaving the index nursing a loss of 59.58 at 4526.55.
It has risen almost 11% since 10 July, buoyed by a raft of second-quarter blue-chip profit numbers and a bog-standard bear squeeze.
Traders say the market has started to run ahead of events and recent gains have been unjustified.
That point may be justified by the performance among second-liners, where the FTSE 250 index fell 155.1 to 7721.71.
Wall Street took a dive this afternoon on the back of the latest consumer confidence numbers. The Dow Jones fell 43.91 to 9064.60.
Profit-taking was targeted on the miners. Randgold fell 234p at 3800p after announcing plans to issue extra shares to fund development of its Gounkoto and Massawa projects in Senegal and Mali.
Other losers included Rio Tinto, down 57p at 2394p, and Anglo American, 57½p at 1868p. Even Xstrata fell 45p to 741.6p despite posting an 11% increase in first-half coal production. Copper output rose by 1%.
Second-quarter results from oil giant BP got an initial thumbs-up from the City, but the euphoria proved short lived with the shares relapsing 12.45p to 506.6p.
The drop in profits, relating to the lower oil price, was not as bad as some analysts had feared.
Late last night Cazenove was urging clients to sell BP and switch into rival Royal Dutch Shell, up 4p at 1602p, which reports on Thursday.
BG Group initially drew strength from BP's performance, but the shares later retreated 21p to 1085p. Cairn Energy, with big proven reserves in Rajasthan, fell 24p at 2405p.
Victoria Oil & Gas firmed 0.28p to 3.95p. The explorer says an independent assessment of its West Medvezhye gas and condensate project in western Siberia has estimated proven reserves of 170 million barrels.
Drugs giant GlaxoSmithKline was up 15½p to 1178½p after Merrill Lynch raised its target price from 1100p to 1200p, but repeated its neutral rating.
Wolseley came under the hammer, falling 34p to 1184p.
The UK's biggest supplier of plumbing equipment warned yesterday it could see no sign of an improvement in trading conditions for the rest of 2009.
UBS has downgraded the shares from buy to neutral, while Charles Stanley raised its rating to hold.
AIM-listed Horizonte Minerals rose ½p to 8p on the back of a positive exploration update from its joint venture partner Troy Resources, which has identified new gold anomalies at its Tangara project in Brazil.
South African gold miner Central Rand Gold fell 5p to 248p, despite celebrating its first gold smelt.
