It was a good day for the stock markets as the elections finally gave a clear verdict in favour of the Conservative Party after months of uncertainty. I have keenly been watching the FTSE 100 utilities’ set given that there was a possibility of them getting nationalised if a Labour government had come into power.
Logically, this meant that if the reverse were to happen, the uncertainty surrounding their future ownership would disappear and potentially make the stocks rally. And that is indeed what has occurred.
Finally an upswing
FTSE 100 electricity and gas provider National Grid (LSE:NG), for instance, saw the biggest rise over the last close in 18 months, of 5.5%. While the company’s share price has largely been trending upwards through the year, it really hasn’t seen a rising trend since I last checked on it.
Now this could be because the overall situation was hanging in the balance, and what was true for the broader markets also had to be true for some shares. But I suspect it’s also because there was a double doubt about what’s next for utilities.
I say this because the last results for NG that came out in mid-November were an improvement over the set seen before that. Underlying operating profit for the company is up by 1% for the first half of 2019–2020 compared to being down by 2% for the full year 2018–2019.
The company also sounded positive about the progress it’s making in other business areas like completing an acquisition and increasing its emissions’ reduction target. Yet, despite this the share price didn’t budge. It didn’t come off, but it didn’t rise either, indicating to me that investor attention was elsewhere.
Breaching barriers
Water and sewage facilities provider United Utilities (LSE:UU) showed an even bigger gain of 6.8% and also broke the 900p barrier for the first time since June 2017. Unlike National Grid, which would have been harder to nationalise because of legal complexities associated with its international operations, companies like UU or even Severn Trent would be easier to bring under the fold of the government.
And this clearly seemed to be on investors’ minds, much more than performance, just as in the case of NG. After it announced its results on 20 November, UU’s share price reacted but not nearly as much as it did following the election result.
Fundamentally, UU remains a sound company and its latest results aren’t anything alarming either. It saw some increase in both revenue and underlying profit, which on balance is a positive even though reported profit declined.
Severn Trent was the biggest gainer of the three, up almost 9% from the last close, indicating that investors are far more positive on utilities now. But the price has run up in the last session, and I would wait for the euphoria to cool down and then invest in these shares.