Section 1.0. Company Highlights

Section 2.0. Utility Sector Landscape & SWOT Analysis

The Utility space comprises of power (gas and electricity) and water industry in the United Kingdom. The sector has witnessed a shift towards renewable energy sources coupled with ever-increasing interest on digital technologies amidst Global macro concerns like the COVID-19 pandemic, geopolitical tension, disruption in energy supplies, etc. A few of the well-known companies in the space include Drax, Centrica, United Utility, and others.

The United Kingdom reported a rise of 12% in fuel costs in October 2021 following a hike in the energy price cap by Office of Gas and Electricity Markets (Ofgem). The wholesale price of gas in January 2022 was almost four times higher than reported in early 2021. Prices have been driven basically by limited stocks of natural gas and supply constraints, following the emergence of the economy from the COVID-19 restrictions. Prices have further gained momentum by the decision of the UK and the EU to reduce its dependence on Russian gas. 

Key Trends in the Utility Sector

SWOT Analysis

Section 3.0. Sector Risks & Opportunities

Risk Exposures to Utility Sector 

• Risk of Additional Tax: The UK Government is proposing on the idea of introducing a windfall tax on the sector in order to combat the high cost of living and rising energy bills.
• Climate Risk: Energy and Utility companies are at the forefront to drive climate change and as such is susceptible to Government rules and regulations.
• Supply Risk: Any change in supply scenario of gas from other countries can lead to reduction in demand and supply gap thereby adversely impacting prices.
  

Utility Sector Outlook

The utility sector has been enjoying high output prices owing to several macro issues like demand crunch, recovery of economy from the COVID-19 pandemic, phased reduction of gas from Russia, and others. As per a recent update on 29 June 2022, Britain's energy regulator Ofgem has proposed a spending package of £20.9 billion, including £2.7 billion in upfront funding as part of an initial five-year plan for sustainable and affordable regional energy grids. Hence, there are favorable tailwinds in the sector at present along with the presence of certain regulatory risks.

Section 4.0. SSE PLC (Buy at GBX 1,633.50 current price as on 29 June 2022, at 11:25 AM GMT+1)

4.1 Company Details

4.2 Valuation and Technical Guidance

Section 5.0: Northern Electric PLC (Speculative Buy at GBX 135.00 closing price as on 28 June 2022)

5.1 Company Details

5.2 Valuation and Technical Guidance

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical issues prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Note 5: Dividend Yield may vary as per the stock price movement.  

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: In general, it is a level to protect further losses in case of any unfavourable movement in the stock prices.

---

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.

Kalkine Media Limited, an affiliate of Kalkine Limited, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.