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Highlights
- Chancellor Rishi Sunak has hinted that the government may impose a windfall tax on electricity generation companies as they earned extraordinary profits recently.
- The money will be used to fund the £15 billion cost-of-living package announced by the government last month.
Weeks after taking a U-turn and announcing a windfall tax on oil and gas companies, Chancellor Rishi Sunak has hinted that the levy may be extended to electricity producers as well. This could fetch billions for the government to help UK households deal with the skyrocketing energy costs.
Speaking in the Parliament on Monday, Sunak told the Treasury Select committee that a possible levy might be imposed on power companies as they generated extraordinary profits due to the high energy bills. The money could be used for the extra borrowing required to fund the £15 billion cost-of-living package announced by the government last month.
As part of the package, the government had also announced a 25% additional tax, called the 'temporary targeted energy profits levy', on oil and gas companies operating in the North Sea for the next 12 months. The tax is expected to bring in around £5 billion by the next year.
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However, Sunak's indication of a windfall tax on electricity generators didn't go well with the opposition Labour Party. It has accused him of damaging investment plans of British power generators by threatening to impose a windfall tax on them.
Let us analyse the stocks of some electricity producers in the UK and how they reacted to the news of the windfall tax.
National Grid Plc (LON: NG.)
National Grid is a multinational utility business headquartered in London. It transmits and distributes electricity and gas across the UK. It is listed on the FTSE 100 index.
The company's shares were trading 0.72% down at GBX 1,119.35 as of 10:34 am GMT+1 on 7 June 2022. It currently has a market capitalisation of £41,116.92 million, and the share price has appreciated by over 22% over the past one year. The year-to-date or YTD return stands at 5.63%.
ContourGlobal Plc (LON: GLO)
ContourGlobal Plc is a British power generation company, and it is present in 20 countries across the world. It develops, acquires, owns and operates power generation assets. The company is listed on the FTSE 250 index.
With a market cap of £1,653.47 million, the company's share price was hovering at GBX 252.51, up 0.20%, as of 10:32 am GMT+1 on 7 June 2022. In the last one year, the share value has increased by 29.76%, while the YTD return stands at 31.93%.
Drax Group Plc (LON: DRX)
The FTSE 250 listed company is engaged in electricity generation and supply to its customers in the UK. It currently holds a market cap of £2,880.00 million. Its shares have given a significant return of 61.86% to the investors over the past year, and its YTD return at present stands at 18.40%.
At 10:53 am GMT+1 on 7 June 2022, Drax Group's shares were trading at GBX 715.00, down 0.56%.
Note: The above content constitutes a very preliminary observation or view based on market trends and is of limited scope without any in-depth fundamental valuation or technical analysis. Any interest in stocks or sectors should be thoroughly evaluated taking into consideration the associated risks.
