May 8, 2015 / 8:06 AM / 5 years ago

UK utilities gain from Conservative election victory

LONDON (Reuters) - British utilities Centrica (CNA.L) and SSE (SSE.L) were some of the biggest stock market winners after Britain’s national election, as the Conservative victory meant they avoided the prospect of tougher regulation proposed by the main Labour Party.

A Conservative party supporter wears a rosette in support of Prime Minister and local member of Parliament David Cameron at the counting centre, as votes are counted in Britain's general election, in Witney, May 8, 2015. REUTERS/Toby Melville

Left-leaning Labour’s pledge to freeze household bills and enforce power production auctions had wiped as much as 2.7 billion pounds off the companies’ combined stock market value in September 2013.

The shares had mostly underperformed the UK equity market as a whole since then, as investors were put off by the potential impact on profits of Labour’s interventionist proposals.

“We believe there is scope for the discount to unwind now there is relative clarity,” said analysts at Bank of America Merrill Lynch.

Both stocks had been trading on around 14 times prospective earnings, according to Reuters data which put their discounts to sector peers at 36 percent and 15 percent respectively.

Following Friday’s election result in which the Conservatives won an outright majority, shares in Centrica and SSE rose to multi-month highs and were among the top performers among leading UK equities.


Centrica shares rose up to 9.5 percent while SSE traded up 6 percent higher. The blue chip FTSE 100 index .FTSE was up 2.0 percent, as UK assets as a whole benefited from the victory of the Conservatives seen as more business friendly than Labour which had promised tougher regulation of industries such as banking, real estate and gambling as well as utilities. .L

“We welcome the certainty and continuity provided by the clear result of the election,” said Centrica Chief Executive Iain Conn in a statement.

SSE was not available for comment.

The Conservative Party has, however, pledged to stop paying subsidies for onshore wind projects, some of which are built by utilities.

Green energy body the Renewable Energy Association said it wanted to see Prime Minister David Cameron acknowledge the importance of low-carbon technologies.

Britain’s two biggest bookmakers William Hill (WMH.L) and Ladbrokes LAD.L also gained, up 5.3 percent and 9 percent at 1431 GMT respectively, as the risk reduced of another hit to earnings.

Labour had vowed to hand local councils the right to reduce the number of fixed-odds betting terminals in betting shops or ban them, a power that would have further hurt revenues of firms already faced with rising regulation and taxes.

Shares in banks also jumped on Friday as prospects were removed of a break-up of Britain’s biggest banks and further hikes in the bank levy.

Reporting by Karolin Schaps and Neil Maidment; Editing by David Holmes

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