SSE, British Gas owner Centrica and Drax have nothing to fear from reports of the energy profits levy being raised in Thursday’s autumn statement according to JP Morgan.
The levy will increase to 35% from 25% with power generators included for the first time, according to weekend reports, while the scheme might be extended until 2028 from 2025.
If confirmed, this would good news near term for owners of UK power generation assets, including SSE, Centrica, and Drax reckons JPM.
“In our view, the reports indicate that this windfall tax would be implemented instead of a revenue cap.
“Most importantly, in our view, will be details around any investment allowances that companies will receive to offset the levy –we note that energy companies currently get a 91p tax saving on every £1 they invest.”
SSE, Drax, and Centrica trade at significant discounts to the fair value given the uncertainty that has surrounded the subsector since a windfall tax was mooted but the risk/reward is 'skewed to the upside' on all three ahead of the Autumn statement. JPM concluded.
Shares in Centrica rose 1.6% to 83.6p, SSE by 1% to 1,643p and Drax by 1.7% to 553p.