Travis Perkins (LSE:TPK), AFC Energy, Capita and Centrica were among the companies that analysts reckon could benefit from a potential Labour victory in next week's general election.
UK stock market performance around the previous eight UK general elections has been volatile, analysts at RBC Capital Markets pointed out, having drilled through the data going back to the 1992 election won by John Major.
For 2024, the closest potential correlation is seen with the positive performance period around the victory for Tony Blair’s New Labour in 1997 – the last time the UK had an incoming Labour government.
Using an assumption that current polls are correct and July 4th sees a Labour government win, RBC’s London analyst teams were asked to highlight potential impacts on their sectors and areas of public policy that are likely to be of investor interest.
In energy transition sectors, a Labour win could see AFC Energy PLC (AIM:AFC, OTC:AFGYF) and ITM Power PLC (AIM:ITM) as beneficiaries given greater support for green hydrogen and climate and energy in general.
The fossil fuel-focused part of the energy sector faces concerns about potential windfall taxes and changes to investment allowances, which could deter investment and affect sentiment. UK oil and gas industry mid- and small-caps have already fallen in anticipation of changes.
In the financial sector, particularly banks, RBC states that the risk posed by the UK election has been largely mitigated. The Labour Party's clarification on deposit tiering has de-risked the event, and RBC draws parallels to the 1997 election, where UK banks outperformed the market significantly in the run-up to the election.
“Labour have generally presented themselves to be pro-growth which is a good backdrop for UK banks,” analysts said.
“If this manifests itself in a softening of Basel 3.1 (due later this year) and the removal of the SME support factor, this would be most helpful for Natwest Group PLC and Close Brothers Group PLC (LSE:CBG).”
For retailers, investors are likely to be focused on the potential effects on household cashflow and consumer purchasing power, with Labour government’s policy on tax, property costs, pensions and the housing market, plus any impact on labour costs, the biggest cost line for retailers, plus business rates.
If Labour replaces the existing business rates system to level the playing field between high street shops and large online businesses, this could be a positive for store-based retailers like Associated British Foods PLC (LSE:ABF)-owned Primark and Marks and Spencer Group PLC (LSE:MKS), at the expense of the likes of ASOS PLC (LSE:ASC) and Boohoo Group PLC (AIM:BOO).
In business services, RBC notes that companies like Serco Group PLC (LSE:SRP) and Capita PLC (LSE:CPI) might see a temporary pause in contracts due to election activities. However, overall policies are expected to remain stable.
For consumer staples, the analysts do not see a Labour government as material for the companies it covers, with demand seen as defensive and unlikely to be significantly affected by political shifts. Companies such as Cranswick, Hilton, Premier Foods, and Fever-Tree are not expected to see changes in demand or profitability due to government policy.
In healthcare, Labour has historically been averse to outsourcing to the private sector, though the current shadow health secretary has specifically called out increased near-term use of outsourcing in order to address waiting lists.
This could support increased demand for Spire Healthcare Group Plc (LSE:SPI), while further investment in the UK’s healthcare infrastructure in the longer term could be a headwind for Spire, “but we do not see this as likely in any reasonable timeframe”.
Homebuilders such as Taylor Wimpey PLC (LSE:TW.), which has an extensive strategic landbank, would be in “pole position” in the event of a Labour win, while Vistry Group PLC (LSE:VTY) is “unique among the listed UK housebuilders” as it operates a partnership model, which means it has a focus on social and affordable housing which are largely government funded.
The entire building materials sector is likely to benefit from a Labour government, RBC said, in particular those with higher exposure to residential housebuilding, such as Travis Perkins (LSE:TPK), Genuit Group PLC (LSE:GEN) and Howden Joinery Group (LSE:HWDN).
In utilities, Labour has pushed a pro-nuclear mandate, which is helpful to British Gas owner Centrica PLC's (LSE:CNA) infrastructure business, while the buildout of renewable power is "positive" for SSE PLC (LSE:SSE).
While details are as yet thin on the ground, the aim of funding chronic underinvestment in UK infrastructure may involve establishing new financing agreements and providing new investment opportunities for infrastructure funds like HICL Infrastructure Company Limited (LSE:HICL) and GCP Infrastructure.