In the build-up to Wednesday’s Budget, gambling stocks had fallen amid fears that they would be caught up in a Labour tax raid. In the end, they escaped being subject to punitive taxes, sending listed shares like Entain and Flutter soaring.
Housebuilder stocks closed lower despite an initial early strong run and promises of new investment in affordable homes from the new Labour government. Airlines and oil companies were hit by tax increases, but proved relatively resilient on the day.
Overall, UK stock markets were largely unfluttered by Rachel Reeves’ first Budget. The FTSE 100 and FTSE AllShare ended the day modestly lower, the domestically focused FTSE 250 closed slightly higher. FTSE AIM was the biggest index winner because tax changes to Alternative Investment Market shares were less severe than expected. The Morningstar UK Index also closed marginally below Tuesday’s level.
According to Dan Kemp, chief research and investment officer at Morningstar, believes that UK investors can be “relatively sanguine” despite the challenges of the Budget.
“The first point is that the UK is already cheaply priced compared to other major markets and its largest constituents tend to draw most of their earnings from overseas. Over a typical investment horizon, valuation is likely to have a far greater impact on returns than politics or short-term fiscal measures.
“Second, while the Budget looms large for us in the UK, the US and Japanese elections combined with Chinese economic performance are likely to have a much greater influence on UK asset prices in the near term,” he says.
FTSE 100 Gambling Stocks Soar
UK gambling stock Entain ENT was the biggest FTSE 100 stock winner after the Budget. The owner of Ladbrokes, Coral, and Sportingbet saw its share price leap 8.64% to £7.75.
The London-listed shares of Betfair and Paddy Power owner Flutter FLTR also jumped 5.62% to £181.40.
Flutter’s primary listing is now the New York Stock Exchange following a listing transfer to the US that completed in May this year.
Key Morningstar for Metrics for Flutter FLTR
• Economic Moat: Narrow
• Fair Value Estimate: £196
• Morningstar Rating: 3 stars
• Sector: Consumer Cyclical
• Morningstar Uncertainty Rating: High
Prior to the Budget, the Treasury was supposedly considering fresh levies on gamblers to raise between £900 million to £3 billion as part of efforts to fill the much discussed £22 billion “black hole” in the public’s purses.
To the relief of the gambling sector and its backers, Reeves did not mention them in her speech. However, Labour is set to consult next year on proposals to collate “remote gambling” into one single tax, to close any loopholes in the system. The Gross Gaming Yield bandings for gaming duty will also be frozen from April 1, 2025, until March 31, 2026.
Housebuilder Stocks Run Out of Steam
Housebuilding stocks initially rose after Reeves reiterated that Labour would build 1.5 million homes over the course of this parliament.
In her speech, Chancellor Reeves promised that billions of investment would be allotted to housing in 2025.
Of the listed housebuilder stocks, only Taylor Wimpey TW. ended the day higher, despite a strong showing during the trading day.
Which Stocks Are The Post-Budget Losers?
While the chancellor ignored some sectors in her budget, oil and gas did not escape so lightly.
Reeves announced that Labour will increase the windfall tax on profits of oil and gas firms from its previous level of 35% to 38% and extend the levy until March 2030.
The increase brings the headline tax on oil and gas activities to around 78%, one of the highest in the world.
Oil Windfall Taxes and Stocks
Yet Britain’s oil and gas giants did not fare as poorly as would be expected. Shell’s SHEL share price closed marginally higher while BP BP. dropped by more than 1%, adding to a bad week for the oil major.
Airline stocks didn’t nosedive either, despite Reeves’ tax hike on air passenger duty.
Labour will raise airline duty by up to £2 for economy class short-haul flights, although this will be hiked to 50% for those flying on private jets.
Low-cost airline EasyJet EZJ closed marginally higher, as did British Airways owner International Consolidated Airlines IAG.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
