Energy competition probe an opportunity to "restore investor trust", says Investec

27th Jun 2014 12:59

Investec has said it was not surprised by Ofgem's move to refer the UK energy market for a full competition investigation, saying it should be a positive for the industry.The broker said its view on stocks in the sector remains unchanged despite the developments, as it kept 'buy' ratings on Drax and SSE and a 'sell' stance on Centrica.Following the proposal made in March, the Competition and Markets Authority (CMA) is now being tasked to "ensure, once and for all, that competition works effectively for consumers", the regulator said. The investigation will look at the relationships between the supply businesses and generation arms of the Big Six energy suppliers, as well as their profitability.Investec said: "We believe this is an opportunity to restore investor trust in an important part of the GB energy market, which has recently been dogged by political commentary and policy uncertainties. "The CMA is required to publish its final report by Xmas Day 2015. Hopefully the Xmas lights will not flicker beforehand."The broker said that the CMA will hopefully foster a "competitive environment" amongst players in UK energy, "allowing markets to decide 'winners and losers' in this period of substantial industry change"."If it succeeds, we believe genuine equity will be attracted to the industry. If it fails, we foresee equity morphing into 'quasi-debt', with cost pass through structures underwriting equity risk."BC