How do foreign investors view the increasingly volatile UK market and what is their approach to the utilities sector?
This was the question posed of two of the country’s leading utilities analysts at the inaugural Utility Week members’ networking evening.
Dominic Nash and Peter Crampton, of Barclays, addressed a handpicked audience of Utility Week subscribers at London’s Soho Hotel.
The pair, who joined the bank’s analyst team from Macquarie at the end of last year, said economists typically tend to take a negative stance on the industry but uncertainty in the global economy has led to a more positive outlook on the defensive utility sector.
Nash pointed to the material underperformance of UK utilities versus their global peer group and highlighted four key concerns mentioned by global investors – Brexit, nationalisation, the perceptions of the UK government and the regulatory regime.
On Brexit, he said that the impact on utilities was no different to any other UK sector, but the increased uncertainty has been one of the factors in the underperformance compared to global utility peers. Investors are relatively agnostic on the actual outcome of Brexit, he pointed out, saying it was the uncertainty that was really spooking them.
Nationalisation is a topic that simply won’t go away, even if Labour stay in opposition, he insisted. The argument against it is widely understood as are the protections for investors but given a choice between investing in UK and a European utilities, it could be the deciding factor, Nash said.
There is also a sense that both the government and regulator are keen to reign companies in, Nash added, pointing out that price caps are rarely signs of encouragement for global investors.
The pair also talked about the changes in perceptions of renewable energy in the UK and said that the latest rock-bottom prices for offshore wind in the Contracts for Difference auction had been noticed worldwide. Nash said SSE’s exploration of building an offshore wind farm on a merchant basis could be a gamechanger for the industry.
Both analysts stressed that there were encouraging signs that utilities players were willing to adapt their business models to new ways of working. The restructures at Eon, RWE and SSE with the aim of specialising in particular areas was an attractive one for investors they said. More interesting developments are to come in this area, Crampton predicted, with EDF now starting to talk about whether it could separate out parts of its existing business.
Attendance at the event was exclusively available to Utility Week members. To find out more about the benefits of joining, please contact JoNikiforov@fav-house.com.