Energy firms SSE, Scottish Power, Centrica, Npower, E On and EDF Energy, who make up 95% of the UK energy market, will be investigated over the next 18 months over allegations that the market could be more competitive.
Regulator Ofgem has called for the Competition and Markets Authority to investigate whether companies have not been offering customers the best priced deals. Today’s Ofgem report said there was “possible tacit co-ordination" between the firms on the size and timing of price rises, although no evidence of actual price fixing has been found.
Share prices fell on the announcement, but have since picked up. We reveal the current outlook for the listed energy companies, according to Morningstar equity analysts.
SSE (SSE)
Yield: 5.47%
SSE is one of the biggest players in the U.K. power markets, with a diversified presence across generation, transmission, and distribution. Margins are expected to shrink at its U.K. generation business during the years ahead, and the supply business may not be able to make up for lost profits. Political outrage at electricity costs might make it difficult to pass through higher rates, potentially dampening growth and returns on capital.
Centrica (CNA)
Yield: 5.15%
The British Gas brand name has contributed to strong growth in the residential HVAC maintenance and heating system installation businesses. Centrica has achieved steady earnings and dividend growth despite reduced retail gas and power demand and a large tax increase on North Sea gas production. Offshore wind power is an expensive renewable energy source that requires government subsidies to support development. This could be problematic with the pressure on the U.K. government budget.
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