Interactive Investor

Liz Truss energy plan is great news for these stocks

8th September 2022 15:35

by Graeme Evans from interactive investor

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The UK’s new prime minister has made public her plan to tackle the energy crisis. Here are the stocks that the City thinks will benefit and those that won’t.

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North Sea producer EnQuest (LSE:ENQ) and shale gas firms Egdon Resources (LSE:EDR) and IGas Energy (LSE:IGAS) were among stocks higher today after Liz Truss unveiled plans to tackle the energy crisis.

Help for the hospitality sector also boosted interest in Marston's (LSE:MARS) and Mitchells & Butlers (LSE:MAB), but shares in (LSE:MONY) came under further pressure as an annual price cap of £2,500 over the next two years will mean no revenues from energy switching.

The overall impact of the new prime minister’s aid package worth an estimated £150 billion was muted given that most of the initiatives had been priced into shares earlier in the week.

Centrica (LSE:CNA) and SSE (LSE:SSE), for example, rose sharply yesterday on relief that Truss is not planning a windfall tax and that mechanisms are being devised to cap European power prices.

Support for household disposable incomes should boost the retail outlook, but these benefits were outweighed by today’s Primark profits warning as its owner Associated British Foods (LSE:ABF) said a stronger US dollar would mean much lower margins in the year ahead.

Marks & Spencer (LSE:MKS) shares have had a roller-coaster ride this week, peaking at 132p on Tuesday morning before falling back to below Monday’s starting point at 116.5p as cost pressures and inflation headwinds remain despite the energy bill support for customers.

Inflation hit a 40-year high of 10.1% in July but is now expected to peak at 11.5% in November and then fall faster next year due to bills not rising as much as experts originally thought.

LIberum’s strategy team estimate that retail sales growth could be as much as 2.5 percentage points higher in January and February and boosted by 1.8 percentage points across 2023.

However, they added: “The measures announced today will not be able to prevent a recession in the UK, they can only dampen the effects of it.

“In the short run, today’s announcement is good news for equity markets. However, we still expect the market to go lower in the fourth quarter as the economy drops into recession.”

Paul Dales, chief UK economist at Capital Economics, warned that supporting economic activity will fuel inflation over the medium term as he predicted that interest rates are likely to now go higher than his recent expectations of 3%.

Bigger budget deficits and higher debt will also add to pressure on sterling, which Capital Economics sees falling from yesterday’s 37-year low of $1.14 to as far as $1.05.

Further government announcements today included a suspension of the green energy levies and the creation of an Energy Supply Task Force to negotiate new long-term supply contracts and award drilling contracts in the North Sea. The ban on fracking is also lifted.

EnQuest, whose largest asset is the heavy producing Kraken field in the North Sea, rose 1.6p to 30.3p and is close to levels last seen in May.

Presenting half-year results on Tuesday, chief executive Amjad Bseisu said his company was committed to supporting the UK's objectives of delivering energy security and decarbonisation, including through the repurposing of existing assets.

Harbour Energy (LSE:HBR), which holds a leading position in the UK following its creation in 2021 through the merger of Chrysaor and Premier Oil, was higher today having seen its valuation rise by a quarter over the past month.

The lifting of the moratorium on hydraulic fracturing for shale gas which was introduced in November 2019 was welcomed in statements by Egdon Resources and IGas today.

Egdon, which was formed in 1997 and listed on AIM in 2004, said it looked forward to working with government and local communities “to deliver this nationally important resource in a timely fashion".

It has 36 licences, with its core geological area being the Gainsborough Trough of Nottinghamshire, Lincolnshire and Yorkshire.

IGas, which has interests in the same area, said data collected over the past five years showed Gainsborough Trough as a world-class shale gas resource which is now, given the energy crisis, a “strategic national asset”.

Chief executive Stephen Bowler said: “Recent polling by YouGov has shown that, as the cost-of-living crisis bites, local people support shale development where it can bring real benefit to their community in reducing bills.

“We will work together with local communities to deliver this much needed resource in the near term and demonstrate that it can be done safely."

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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