Conservative victory in UK election will provide relief to utilities, says SocGen

8th May 2015 09:23

Utility stocks surged on Friday, with the threat of any energy price cap by the Labour party falling away as the Conservatives looked set for a surprise UK election win.Given that opinion polls had suggested a broadly 50/50 probability of either a Conservative or Labour government, concerns regarding Labour's potential policies had been partly to blame for the underperformance of the UK utility sector, said Societe Generale on Friday. It noted that utilities have underperformed the UK market by 9% and the European sector by 7% year to date.Perceived risk from Labour was largely focused on energy supply and as a result, Centrica and SSE are likely to benefit most from confirmation of a Conservative victory, said SocGen.The bank's relative preference is for Centrica, which has a greater proportion of energy supply profits and trades on a lower valuation multiple than SSE. Societe Generale also highlighted the fact that SSE hasn't materially underperformed it peers. "It has underperformed the market by 6% year to date, but National Grid and Centrica are both down 10%," it noted.Looking ahead, the French bank said that while the major hurdle of the election has passed, there is still the Competition and Markets Authority (CMA) review to overcome, most likely in mid June."Given UK supply margins are increasing as a result of lower wholesale and Energy Company Obligation (ECO) costs, and small supplier growth has been impacted by Big Six discounting in the fixed-term market, we still view the CMA review as a risk factor."