The General Election campaign has been predictably dispiriting but it has sprung one surprise.
I would have expected the slanging match over utility companies to have kicked off by now, inflicting further damage on the share prices of utility companies Centrica (LSE: CNA) and SSE (LSE: SSE). It hasn’t happened yet.
Power Games
Investors saw the damage politics can do 18 months ago, when Labour leader Ed Miliband knocked 20% off British Gas owner Centrica’s share price by threatening a 20-month utility bill freeze if he took power this May.
Centrica has been underpowered ever since, falling from a high of nearly 400p then to around 262p today.
SSE was also hit hard by Miliband’s populist pledge, and although it has recovered lately, it remains slightly down since then.
Never believe anybody who says utilities are a low-risk investment, they come stacked with plenty of political risk.
Lacking Energy
Centrica was high on the list of shares tipped to fail if Labour wins the election, but zero inflation may have taken some of the heat off the stock.
It is harder (but not impossible) for politicians to claim consumers are being squeezed by rising living costs as the country moves into an unprecedented period of falling prices.
And it is seems pointless freezing energy bills when they falling anyway. British Gas cut prices by 5% in January to reflect falling wholesale costs, while SSE reduced its by 4.1%.
Give It Time
Miliband inevitably dismissed that as “too little, too late” and there is no doubt that most customers would agree. Some 14 million households went cold this year to cope with high energy bills, according to a recent survey by uSwitch.com.
Attacking the utilities would still be a popular move, so investors will have to assume it has been timetabled in.
As the parties play role reversal, with the Tories presenting themselves as the low earner’s friend and Labour claiming to be the party of fiscal responsibility, it would hardly come as a surprise if David Cameron led the charge against utility companies.
He would certainly have to sharpen his knife if Labour got stuck in first.
The Heat Is On
I suspect the political fireworks are still to come. Centrica won’t be saved by its price cut or the 35% drop in full-year operating profits, which forced it to cut exploration costs by £400m and slash its dividend 21% to 13.5p.
A hung Parliament would further cramp investment as the decision-making process over projects and subsidies seized up, while a price freeze would hit dividends and margins at both companies.
Centrica and SSE may have got off lightly so far but investors should expect trouble ahead, both before and after the election.