Broker snap: SSE and Centrica downgraded due to political risk

4th Nov 2013 09:10

Investec has downgraded its ratings for UK-listed energy providers SSE and Centrica from 'add' to 'reduce' to reflect rising political risk."The latest round of 'Big 6' bashing in Parliament signals that political headwinds for the UK's main energy suppliers (the so-called 'Big 6') are freshening, ahead of the 2015 General Election," said analyst Harold Hutchinson.He said that the Big 6 are in an "unenviable 'lose:lose' situation" in terms of their profitability outlook with the political focus on them unlikely to abate before the upcoming elections."It adds to the already higher level of political risk sweeping through the UK electricity market, driven by the on-going Energy Market Review (EMR) process. This threatens overall sector investment, and it is very hard to dress it up as 'good news' for large UK energy suppliers, including SSE and Centrica."The target price for SSE has been cut from 1,475p to 1,325p, while the target for Centrica has been lowered from 375p to 325p.In contrast, Hutchinson reiterated his 'add' rating and 700p target price for Drax, saying that the stock will be a "relative winner" from the current energy situation in light of its strong position in UK electricity generation and biomass-conversion plans."Paradoxically, Drax is relatively well placed, amidst the political fury, in our view. As capacity tightens, the UK needs Drax more than ever, to ensure the lights stay on."BC