Friday, 6 December 2013

The Big Six Power Companies

Big Six Energy Companies

" It looks as though Capital Gains Tax is too low in Britain, and too high on the continent."

We read that the profits of the Big Six energy companies have (when averaged) increased five fold since the financial crisis of 2008/9; increasing from 0.22 B£ to 1.2 B£. That has been due to price hikes and hard winters. There was a major hike in 2012 which lifted all 6 into profitability. So why a hike in 2013? One suspects that the companies saw that they got away with it in 2012, and were tempted to try it again. 

Back in February this year I pointed out (Ref.1) that Centrica¨ (i.e. British Gas) announced increased profits of 11% over the previous year. I also showed that share prices rose by a similar 11%. , and concluded that the shareholders expected to see those profits. It was clear they had no intention of investing them in the business. Nor was that extra money destined to insulating the homes of chilly customers; nor to pay for more expensive raw materials, for those prices had fallen.

In the Table 1 below I look at all six of our biggest energy providers. One feature is immediately obvious; only two of the six are British owned — Centrica and SSE. Of the others, 2 are German, 1 French and 1 Spanish (Iberdrola). The next point that strikes the eye is that there seem to be two types of business strategy; while the 2 British-owned companies return a piffling divident (P/E over 1000), the continental companies return a handsome dividend of between 7% p.a. on the capital invested in EDF, to 9.6% for shares in Iberdrola¨. On the other hand shares in the continental companies have all slumped steadily over the 5 years from Jan 2009, while shares in the British companies have shown a steady and sustained rise over the same 5 years with a smoothed average of 8% p.a (for SSE) to a staggering 18% p.a. (for Centrica). Who needs a dividend if the share itself increases in value at a rate that is 9 times greater than inflation!

 

It looks as though Capital Gains Tax is too low in Britain, and too high on the continent; with the possibility of a compensating imbalance in corporation tax levels such that in Britain, companies find it prudent not to make a profit if that can be legally avoided.

Table 1

Data for Northumberland, including VAT (5%), 'standard' direct debit rate, unit cost (pence/kwh), standing charge (pence/day)

 

Company

Curr. Unit (p/kwh)

Standing Charge (p/day)

P/E ratio

Smoothed
5 yr. ann. share rise%

Npower
(RWE AG)

14.879

10.0

10.5

-20%

British Gas
(Centrica Plc)

12.320 

26.000

1,561.97

+18%

SSE
(SSE Plc)

14.35

16.45

1,617.76

+8%

E.On
(EOAN.DE)

Not revealed

Not revealed

12.23

-12%

Scottish Power (Iberdrola )

9.689

28.70

10.36

-5%

EDF
(ƒElectriciteŽ de France)

13.78

18.90

14.17

 

References:

[1] http://occidentis.blogspot.co.uk/2013/02/centricas-profit_27.html

Cawstein
cawstein@gmail.com

2 comments:

FarmDonkey said...

Nice job mate, keep up the good work!

Cawstein said...

Thanks FarmDonkey