Labour victory means more regulatory clarity for UK utilities, says JPM

(Reuters) – Analysts at JP Morgan said on Friday that British utilities would benefit from increased investment and greater regulatory clarity following the centre-left Labour Party’s victory in the general election.

The FTSE utilities index was up 0.6% at 0921 GMT, led by British Gas owner Centrica and power station operator Drax.

Utilities in the UK fell sharply after the May election was announced on fears of potentially harsher regulatory intervention. But most of the fall has already been priced in, analysts at Jefferies said in a note.

A Labour government is likely to be “pragmatic” about further support for the Drax power plant, particularly in the context of security of supply, JP Morgan has said.

“The less noise there is about biomass power generation, the more confident we will be that politicians will be sympathetic (or at least pragmatic) when considering future subsidies for Drax,” the analysts said.

Shares in Drax, which received approval for a carbon capture plan in January, rose 1%.

The brokerage also said there was potential for further buybacks of Centrica shares due to greater transparency in capital allocation. Its shares rose 2%.

Analysts say the policy differences between the UK and Conservative governments may be small, and an overall more expansive and interventionist policy framework could prove beneficial for UK utilities in terms of faster investment in the grid.

JP Morgan analyst Pavan Mahbubani wrote that for water companies, the upcoming July 11 regulatory decisions are expected to bolster the sector’s growth story, while improving environmental performance will require greater investment.

Water regulator Ofwat has postponed the publication of the results of its consultation on the 2024 price review until next week due to the election.

(Reporting by Yadarisa Shabong in Bengaluru; Editing by Varuna HK)