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Centrica or SSE to benefit from GB Energy's collapse, say analysts

By Oliver Haill

Date: Monday 28 Nov 2016

Centrica or SSE to benefit from GB Energy's collapse, say analysts

(ShareCast News) - After the collapse of smaller energy supplier GB Energy over the weekend, political intervention in the energy sector is now much less likely, according to Credit Suisse, which said Centrica's British Gas or SSE could take over the supply of affected customers.
GB, a recent new entrant in the residential energy market that was reported to have around 160,000 customers, said on Saturday that is no longer trading due to "swift and significant increases in energy prices" that made its position "untenable".

Ofgem said it would appoint a new supplier to those households affected and assured that outstanding credit balances were protected, with analysts suggesting British Gas, EON or SSE would be best-placed as the largest of the Big Six.

Credit Suisse said GB Energy was unlikely to be alone in facing pressures, with the combination of rising gas and electricity prices taking away one source of competitive advantage for new entrant suppliers, while volatile wholesale electricity power prices in the balancing market are likely to have pressured all energy suppliers without a good price hedge in place.

CS analysts said the news is likely to flag the importance of price rises: "We estimate the 'big six' need circa 10% price rises in standard variable electricity tariffs in Q1 2016 to maintain margins.

"Adverse headlines on customers being left temporarily without a supplier are likely to flag to government the importance of a profitable domestic energy supply industry.

"In our view, Saturday's news therefore makes adverse political intervention far less likely.

Centrica, which has a target pricer of 270p and an 'outperform' rating from the bank, earns circa 57% of its earnings per share from UK domestic energy supply "and has a large political risk-discount which we expect to unwind once the industry increases prices and political noise dissipates", the analysts added.

Apart from German-owned EON, next largest is SSE, which has a TP of 1,550p and a 'neutral' rating, with circa 20% of earnings from UK residential.

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