Utilities digest price control proposals, falling sales for B&M and Nio under fire

“Utility companies are not exactly jumping with joy at Ofgem’s new electricity distribution price control proposals, with SSE calling them ‘tough and stretching’,” says Russ Mould, Investment Director at AJ Bell.

“Energy providers would argue they are under pressure to invest heavily to improve infrastructure, make sure the supply network is resilient, and that everything is being done to hit net zero targets.

“On the other hand, the regulator has long had its eye on the amount of money these companies make, and whether their profits and dividends should be so high.

National Grid says it will work ‘hard’ with Ofgem to agree a price control suitable for both sides, but you can bet behind the scenes those discussions are going to get quite heated.

“Politically this is a sensitive issue, with consumers under considerable financial pressure from a sharp rise in energy bills.

“The regulator will have to tread a fine between making sure the country’s energy network is robust and efficient, while also being fair to the operators that they can do their job and make a small bit on the side. It’s the size of that cake that remains the sticking point.”

B&M

“Value retailer B&M should have been in its elements as the country faces a stalling economy.

“Its cheap prices appeal to cash-strapped individuals who are watching every penny and people looking to trade down from more expensive retailers. However, a drop in sales would suggest this tailwind is not as strong as previously thought.

“The company argues that some of its sales figures were distorted by having very tough year-on-year comparative figures to beat. If you look beyond that trading period, the decline in sales hasn’t been as bad in recent weeks.

“Encouragingly, B&M has followed Primark by finally dipping its toe in the water when it comes to e-commerce.

“A home delivery trial has begun to see if there is enough demand for online purchases of bulkier and higher ticket items.

“That presents an opportunity to increase sales, yet whether such a service would contribute to profits near-term is unknown. Typically, online services need to run on a large scale to make money so even if B&M moves from a trial to a national rollout, there is no guarantee the service will put cash in its pocket after paying for costs anytime soon.”

Markets

“So much for the big stock market comeback. Another day, another sea of red on the market. Asian equities were firmly in the doldrums including a near-2% decline in Hong Kong’s Hang Seng index.

“Electric vehicle maker NIO slumped by 12% after being accused by Grizzly Research of playing games with its accounting. The car company fought back, saying the report was full of errors, unsupported speculations and misleading conclusions.

“The FTSE 100 fell 0.4% to 7,297, dragged down by weakness in big consumer names such as Diageo and Unilever, while some of the miners and telecom stocks were also out of favour.

Moonpig’s results failed to win over the market despite its confidence in raising profit margins thanks to the acquisition of Buyagift.

“Bucking the negative share price trend was car retailer Lookers which said it had outperformed a falling market and raised profit expectations. That might come as a surprise given concerns about consumers pulling back on big ticket items such as cars, sofas and fancy electronics.”

These articles are for information purposes only and are not a personal recommendation or advice.