Retail investors are getting cold feet about holding energy stocks since the chancellor of the exchequer announced the 25% energy profits levy.
The Daily Telegraph reports that the UK’s three big retail investor-focused investment platforms have all released data showing their users baled out of oil giants BP PLC (LSE:BP.) and Shell PLC (LSE:SHEL, NYSE:SHEL) in May.
On the AJ Bell platform, BP PLC and Shell PLC were about as popular as Boris Johnson in the tea rooms of the House of Commons, occupying the top two slots in the platform's list of most heavily sold shares in May.
Meanwhile, interactive investor and Hargreaves Lansdown also reported heavy selling of the two FTSE 100 stalwarts, while the former also cited Glencore PLC (LSE:GLEN), National Grid PLC (LSE:NG.) and Serica Energy PLC (AIM:SQZ) as among those getting the most severe barge pole treatment.
With a market capitalisation of around £718mln, Serica is not in the same league as the other stocks getting the cold shoulder but it appears to have been singled out as one of the biggest losers from the government’s windfall tax.
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Serica, which produces more than 5% of the UK’s gas, was moved in yesterday’s corporate update to note the share price hit it has suffered since the government announced its profits grab and attempt to allay shareholders’ fears.
“The levy is applicable to profits arising on or after 26 May and so Serica's profit prior to that date is unaffected,” the company said.
Serica’s pre-tax profits in 2021 shot up to £135.1mln in 2021 from £12.5mln in 2020; it paid tax on those profits of £55.8mln and £4.8mln respectively. In 2022, it has enjoyed five months of soaring gas prices.
The company also observed that the levy is part of a package that includes significant investment incentives designed to encourage companies such as Serica to continue to reinvest profits.
“Serica already has an ongoing investment programme including the LWIV campaign and the North Eigg exploration well in 2022. Based on our current understanding of the levy, this programme will qualify to benefit from these incentives with each £1 invested by Serica offering an overall tax saving of up to 91.25 pence,” the company said, prompting a rally in the share price.
“Our planned 2022 expenditure on the North Eigg well and the LWIV campaign is around £60 million which we expect to be eligible towards this tax saving. This will offset a large element of the Energy Profits Levy that would otherwise be payable on Serica's profits this year,” it added.
Just before the windfall tax – sorry, energy profits levy (a nomenclature presumably used to bypass copyrights held by the opposition parties on the term “energy windfall tax”) – was introduced, AJ Bell’s investment director, Russ Mould, was speculating over what damage it might do to future investment “in an energy system that’s been in a state of flux for years”.
At rival platform interactive investor, meanwhile, a survey of its users found that a majority were not wild about the idea of a windfall tax.
Just over half of consumers (53%) thought a windfall tax on oil and gas companies to help ease the cost-of-living crisis squeeze would have an adverse impact on their pension but 16% of respondents weren’t sure, while just under a third (31%) believe it wouldn’t hurt their retirement savings.
When asked if they would support a windfall tax to ease the cost-of-living crisis even if it hurt their investments, 62% of investors said they wouldn’t.
Just over a quarter (28%) of respondents said they would support it if used to ease the cost of living, while 11% were unsure.
“Misinformation about the exposure to energy companies in pension funds is perhaps one of the reasons why the majority of respondents to our survey believe the windfall tax would have an adverse effect on their pension. While applying a windfall tax could impact the share price performance and dividends paid out by impacted energy companies, it is a myth that such firms make up a significant portion of most pension funds today,” according to interactive investor’s Myron Jobson.