As the stock markets suffered a bloodbath today, analysts have pointed to the resilience of water companies and the National Grid.
The price war in oil sparked by Saudi Arabia combined with coronavirus fears caused mayhem in financial markets across the globe.
In the UK, Shell and BP both suffered falls of almost 20 per cent. Among utilities companies, Centrica was worst hit – seeing a 17 per cent drop.
However, across the rest of the sector there was a steadier dip – of between 4 and 6 per cent, while National Grid saw a decline of 3.7 per cent.
Dominic Nash, utilities analyst at Barclays, said it was “no surprise” Centrica had been the most heavily affected of the listed utilities companies.
He said: “Centrica will be heavily exposed to oil prices as it is trying to sell its Spirit and British energy divisions whilst at the same time trying to de-lever.
He added: “I would think water and grids will be seen as relatively safe havens.”
Nigel Hawkins, of Hardman & Co, agreed, saying: “Centrica’s fall is clearly gas-related and reflects the concern that if you‘re the major supplier of a commodity whose price is going down it may well be that your numbers are going to significantly worsen.
“They cut their dividend last year by 58 per cent so they’re not exactly in a strong position. With a semi-detached chief executive and a replacement not yet appointed, it’s a worrying position.
“If gas prices are cut by competitors, Centrica’s margin may well be narrowed even further. It may exacerbate the problem of smaller suppliers coming in and under-cutting them.
“The water companies are more resilient however and we have seen that reflected in their share price today.
“National Grid also has been quite strong, despite having a crucial periodic review coming up.”
Lakis Athanasiou, of Agency Partners, said that in a market rout, an initial period of declines across the board would eventually give way to differentiation based on individual company characteristics.
He said: “Broadly, in this environment, you would expect the defensive stocks to out-perform – at least on a relative basis.
“In GB utilities, the defensive stocks are the RAV based water and energy networks.
“The electricity-based stocks have already been hit by the gas price collapse. Though 2020 is moderated by hedging perhaps there is more negativity around the risk that the gas price does not recover into 2021 and 2022, and hedging does not cover the outer years as much.
“The worst hit of all is Centrica. It has already been hit by the gas price collapse, exacerbated by greater chance that weakness continues for a longer period.”