This report is not a personal recommendation and does not take into account your personal circumstances or appetite for risk.
Shares in SSE are now in the red having given up earlier gains of almost 4%. This after confirmation of a deal to de-merge its UK household and services energy business to combine it with Innogy’s own NPower, deigned to pool investment and deliver cost efficiencies. The arrival of “an efficient new independent energy supply and services business” and a supposed “new market model” sounds like just what the doctor ordered to break the stranglehold of the UK’s big six (Centrica/British Gas, SSE, E.ON, EDF, Scottish Power, RWE/NPower). According to OFEGM, they have a combined 82% market share (down from 99/100% up until early 2013).
However, combining the #2 market share (14%) and #6 (10%) to create a new #1 (24%; 11.5m accounts) is sure to face intense competition scrutiny, for fear of both the CMA and OFGEM not showing enough teeth on behalf of the UK consumer. Especially after the government’s recent pledge to control price increases for the most vulnerable to fix what many regard as a broken market, where prices continue to rise despite a move towards renewables. Big six to big five doesn’t exactly scream “consumer benefit”.
With SSE reporting a 40% drop in profits and market share data showing steadily falling market shares for both (SSE down from 20% peak, nPower down from 16%) as smaller operators do similar harm to the discount grocers, albeit without spicing up price competition as much, the attraction of the deal is difficult to question. The ability to get it signed off, however, is another story entirely.
Mike van Dulken, Head of Research, 8 Nov 2017
This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research
Comments are closed.