SSE, CAN, DRX: Stocks to eye as energy bills may go down with £10 bn aid

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SSE, CAN, DRX: Stocks to eye as energy bills may go down with £10 bn aid

 SSE, CAN, DRX: Stocks to eye as energy bills may go down with £10 bn aid
Image source: hrui, Shutterstock.com

Highlights

  • UK households will get a breather on energy bills as part of the £10 billion support package to ease the cost-of-living crisis.
  • It came after the UK energy regulator announced that energy bills are likely to shoot up over 40% to hit £2,800 in October.
  • The package was proposed to ease inflationary pressure on households and is expected to be largely funded by windfall taxes on oil and gas companies.

UK households will get a breather on energy bills as part of the £10 billion support package to ease the cost-of-living crisis. It came after the UK energy regulator announced that energy bills are likely to shoot up over 40% to hit £2,800 in October.

Rishi Sunak to announce £10 billion package to ease the cost-of-living crisis

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Chancellor Rishi Sunak will scrap the previously announced £200 loan on energy bills from October, which was to be repaid over five years. It would be replaced with a grant that will not have to be returned.

The package might further include more support for low-income households and another cut in VAT on fuel, which would benefit over 27 million households.

Windfall tax

A windfall tax is imposed by governments on sectors, industries, or a group of companies when they make massive profits due to certain economic conditions. Of late, oil and gas companies, which extract oil from the ground, are earning a lot of money for two major reasons: first, the demand for oil has gone up as the countries are limping back to normalcy after the pandemic. Second, the demand from these companies has escalated due to supply concerns after the Russia-Ukraine war started.

Cabinet ministers have been criticising the idea of a windfall tax because of its potential impact on investment. But the support package announced by the Boris Johnson government is expected to be largely funded by the windfall tax to be imposed on oil and gas companies, which have generated above-average profits due to current economic conditions. The tax is expected to raise around £7 billion.

Let us look at shares of three British power generator that may get impacted if the UK government impose a windfall tax.

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Centrica Plc (LON: CAN)

The shares of the UK-based multinational energy and services company were down by 1.34% on 26 May 2022 around 8:15 AM (GMT+1) and were trading at GBX 84.18.

The current market cap of the company was £5,040.24 million. The FTSE 250 index constituent has provided its shareholders with a return of 55.63% over the last one year as of 26 May 2022, while its YTD return stands at 17.26%. 

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Image description:  Energy bills were likely to shoot up over 40% to hit £2,800 in October

Drax Group Plc (LON: DRX)  

The shares of the power generation company, Drax Group Plc, were down by 1.33% around 8:15 AM (GMT+1) on 26 May 2022 and were trading at GBX 707.50. The company reported strong system support performance during the first quarter of 2022 and expects adjusted EBITDA for the full year to be around the top end of the current range of expectations.

The current market cap of the company was £2,870.65 million. The FTSE 250 index constituent has provided its shareholders with a return of 58.03% over the last one year as of 26 May 2022, while its YTD return stands at 16.69%. 

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SSE Plc (LON: SSE)

The shares of the multinational energy company, SSE Plc, were down by 2.20% to GBX 1,826.50 around 8:15 AM (GMT+1) on 26 May 2022. The company reported a 41% jump in its operating profit for FY 2022 to £3,755.4 million, from £2,654.9 million in FY 2021. Its pre-tax profit increased by 44% to £3,482.2 million, from £2,418.0 million in FY 2021. 

The current market cap of the company stood at £19,938.77 million. The FTSE 100 index constituent has provided its shareholders with a return of 17.60% over the last one year as of 26 May 2022, while its YTD return stands at 11.85%. 

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.

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