London: Following the Labour Party’s victory in the recent parliamentary election, British utilities are set to enter a phase of renewed clarity and potential growth, as outlined by analysts at JP Morgan.
The FTSE utilities index responded positively, climbing 0.6% by 0921 GMT, with leading gains from Centrica, owner of British Gas, and Drax, a prominent power plant operator.
Initial concerns over stringent regulatory measures, precipitated by the election announcement in May, had driven significant declines in utility stocks. However, Jefferies analysts observed that much of the anticipated impact had already been priced in by the market.
JP Morgan analysts emphasized the Labour Party’s expected pragmatic stance, particularly regarding support for Drax Power Station and ensuring robust energy security.
“The less noise we hear about biomass power generation, the more positive we are that politicians will be supportive (or at least pragmatic) when considering future subsidies for Drax,” noted JP Morgan.
Drax, which secured approval for a carbon capture plan in January, saw its shares rise by 1% in response to these developments.
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JP Morgan also highlighted potential for Centrica to leverage enhanced capital allocation visibility with further share buybacks, prompting a 2% increase in its share price.
While acknowledging potential policy differences from the previous Conservative government, JP Morgan underscored that a broader and more interventionist policy framework could expedite vital grid investments, benefiting the overall UK utilities sector.
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Looking ahead, JP Morgan’s Pavan Mahbubani anticipated that the imminent regulatory determination on July 11 would bolster the growth trajectory for water firms, stressing the critical need for heightened investment in environmental performance.
Ofwat, the water regulator, delayed its consultation on the price review 2024 until next week due to election-related scheduling adjustments.
