A general election in the UK could trigger a slump in SSE plc’s (LON:SSE) share price, says UBS, but the Swiss bank thinks investors are taking the risk of a Labour-led government winning power “too lightly”.
In the run-up to 2017’s snap general election, Labour leader Jeremy Corbyn outlined plans to take parts of Britain’s energy industry back into public ownership.
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If such a scenario were to play out, it is unlikely the government would pay full market value for SSE or its peers.
Although Corbyn is yet to explain how he would finance these renationalisation plans, UBS analysts think his possible ascent to power, coupled with some other issues, could send SSE shares below 1,000p.
“In a general election scenario, or if polling support rises for the UK opposition (who promise to return water, rail and energy networks to public ownership) we could see SSE trade down to an EV/RAB discount of c10%, a potential impact of £1.70 p/s from our target price [of 1,190p].”
While Prime Minister Theresa May’s own MPs are unlikely to throw the Tories under the bus in today’s (Wednesday’s) vote of no confidence, UBS does have other, non-political issues with SSE.
Retail division a concern, too
“With retail demerger plans shelved, SSE may now be stuck for some time with an unwanted retail business that is losing customers fast.
“If customer losses remain high in [this] division (we expect 6-7% attrition this year), the downside could be another £0.40 p/s. In combination, all this [including an unlikely disappointment at the UK wind auction in May] could see the shares fall c20% to 910p.”
Analysts added: “On the other hand, the renewables pipeline looks good and has a major catalyst [UK wind auction] coming up. Overall this leaves us ‘neutral’ at 1,190p per share.”
SSE shares were down 0.6% to 1,148p on Wednesday morning.