Centrica (LON:CNA) has tumbled to the bottom of the blue-chip leaderboard in today’s session as the UK’s ruling Conservative Party signalled that it would cap domestic energy prices should it win June’s snap election. Analysts at UBS meanwhile trimmed their stance on the British Gas owner, noting that a cap on the standard tariff could potentially reduce retail margins by a third.
As of 13:19 BST, Centrica’s share price had lost 4.45 percent to 198.45p, significantly underperforming the broader London market, with the benchmark FTSE 100 index currently 1.91 percent better off at 7,250.41 points. The group’s shares have lost more than 15 percent of their value over the past year, as compared with a 1.5-percent rise in the Footsie.
Shares in Centrica have been sold off in today’s session as The Sunday Times reported yesterday that Prime Minister Theresa May will use the Conservative manifesto, to be published on May 8, to cap the gas and electricity bills for the seven out of 10 households which pay standard variable tariffs. Damian Green, work and pensions secretary, meanwhile confirmed to ITV that price caps would be in the manifesto.
Reuters quoted Jefferies as saying that British Gas owner Centrica was most exposed to a cap on prices, with “this policy potentially derailing their current downstream focused strategy”. The analysts, however, also noted that the FTSE 100 group would not feel the full 100 pound-a-customer impact, as its tariff was competitive versus its peers.
UBS lowered its stance on the British Gas owner from ‘buy’ to ‘neutral’ today, and trimmed its price target on the shares from 255p to 215p.
“We now see implementation of some form of tariff cap as more likely than not,” the bank pointed out, as quoted by Sharecast, adding that proposals could come this week or during the election campaign, but in either case the context of a general election increased the focus on visible action and the chance a tariff cap will be the preferred measure.
“This would be a negative development for Centrica which relies on UK retail for approximately 1/3 of operating profit,” UBS said, noting that cap on the standard tariff could potentially reduce retail margins by a third.