Will Corbyn nationalisation kill the National Grid and SSE share prices?

National Grid plc (LON: NG) and SSE plc (LON: SSE) share prices are already falling, so should we dump them in fear of nationalisation?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Utilities companies like National Grid (LSE: NG) and SSE (LSE: SSE) have long been seen as reliable income providers, with great visibility of earnings and the ability to translate a high proportion of them to dividends.

National Grid, for example, is expected to provide a dividend yield of 5.6% this year, rising to 5.9% by 2021. SSE’s forecast yield is already even higher at 8.2%. But that would be nowhere near covered by an expected big dip in earnings, and is forecast to drop to 6.7% next year — but still pretty big, if relatively weakly covered.

Debts

SSE is already suffering with rising debts, and that’s added a bit of a drag to the share price. But both of these companies have suffered sharp share price falls in the past month — National Grid shares are down 6.1% with SSE down 7.4%, over a period in which the FTSE 100 gained 3%.

The recent dip was triggered when the BBC published an online article under the headline: “Labour to outline National Grid ownership plans,” reporting on Jeremy Corbyn’s apparent upcoming speech outlining his detailed nationalisation plans. It seems he changed his mind and decided to put off the subject until a later date, and the BBC pulled the article. But the damage was done.

Corbyn hasn’t spoken directly about SSE itself, but he has made clear his intention of nationalising the utilities business.

Popular

Whether Labour will win the next election is completely up in the air — but Corbyn’s chances might be high, with surveys suggesting around three quarters of the UK population are in favour of his nationalisation aims.

But it would be an enormous task. National Grid and SSE are the two biggest, with market capitalisation figures of £28.4bn and £11.8bn, respectively. Adding just the other FTSE 100 utilities firms to the list gets us a total of £56.9bn. 

Then there are all the new upstart energy suppliers whose businesses will have to be bought out, and there are going to be plenty of other hefty costs too — so it’s going to be an expensive business.

Payment

Corbyn has mooted the idea of compensating shareholders with government bonds. Now, I don’t know about you, but I certainly don’t want any of those — though I suppose they can be sold easily enough.

One big uncertainty is what prices the companies might be bought out at. But it’s hard to imagine a possibility these days of the government being able to snap them up on the cheap at below market value. But those market values are already being damaged by Labour’s pronouncements.

A buyout of National Grid would be complicated by the fact that half the company’s business in in the USA, though that hurdle is not there with SSE.

Don’t panic

The two things that make me feel shareholders don’t have a huge amount to worry about is that there will surely be big legal challenges to anything institutional investors might feel is unfair, and that I expect it will all take a very, very long time.

In my view, either nationalisation won’t actually happen, or if it does, it will be at a fair price. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »

Investing Articles

If I’d put £25,000 into the FTSE 350 at the start of 2024, here’s how much I’d have today!

Many FTSE shares have rebounded this year as interest rates look set to keep heading lower and market appetite for…

Read more »

Investing Articles

Up 40%, but experts forecast the easyJet share price could soon hit 664p! Time to buy?

The easyJet share price has been flying lately and stock analysts are predicting more fun to come. But there's only…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Worried about tax raids? Here’s how I’m targeting a £44,526 passive income with shares

Investing in a Self-Invested Personal Pension (SIPP) or Individual Savings Account (ISA) can supercharge one's passive income, says Royston Wild.

Read more »