It’s generally accepted that party manifestos usually tend to be a list of eye-catching pledges or wish lists more than anything else, and while most people rarely read manifestos cover to cover, the pledges in them still need to be assessed given the impact some of them might have, if implemented in part or in full.
Whether or not you believe the opinion polls this week’s surprise YouGov poll, has certainly shaken up the natural consensus which suggested that the Conservatives would win easily. Given this change in electoral dynamics there is a risk that some of the radical measures in the Labour manifesto might become a reality, which means that investors may well head for the exits in the event of a Labour win.
Of course there are also pledges in the Conservative party manifesto that are distinctly anti-business, so in looking at the manifestos we can get an insight into where investors need to focus their attention.
This is why the outcome of the 2017 General Election in a few days’ time could have a significant impact on the way a significant number of UK listed companies do business in their respective markets. This is important in light of recent well-publicised pledges by the political parties, but Labour in particular, to change the way these companies do business in their respective sectors.
Looking at the various manifestos, and in particular the Labour Party manifesto, given the still outside possibility that we might see a Labour minority government, there are certain pledges to intervene in various sectors of the UK economy that could well impact a number of companies, who also contribute a great deal in terms of dividend income to not only small investors, but also to larger pension funds.
From a financial transaction tax, to a widespread intervention in business and a renationalisation program, a prospective Labour government could have significant repercussions for listed businesses across the UK, as well as defence contractors.
This is particularly relevant given recent gains in the FTSE 250 where it has recently hit record highs of over 20,000 and has an average dividend yield of 3.1%.
The various sectors that could be affected are as follows:
1. Energy markets – the energy market is likely to be affected no matter who wins, but it will be about degree more than anything else. The Conservative party has already pledged to bring in a price cap on variable tariffs, which would be subject to review on a six monthly basis.
Labour will introduce an immediate emergency price cap, to ensure that the average dual-fuel household energy bill remains below £1,000 per year, while they transition to a fairer system for bill payers. They will also take energy back into public ownership to deliver renewable energy, affordability for consumers and democratic control. Labour would also retake control of the energy supply networks and control grids. Labour would also ban fracking. It is important not to underestimate the impact here given that future infrastructure spending could well be affected, which given concerns about how future UK energy is delivered are likely to be significant.
- Centrica (LON:CNA), current dividend yield 5.9%
- Scottish and Southern Energy (SSE) (LON:SSE), current dividend yield 6%
- National Grid (LON:NG), current dividend yield 3.99%.
2. Water Utilities – according to the Labour manifesto the water industry also requires reform. A significant percentage of people struggle to pay their water bill. Despite this, only a fraction of customers have benefited from the social tariffs offered by water companies. The Labour Party has pledged to replace the current water system with a network of regional publicly owned water companies.
- Severn Trent (LON:SVT), current dividend yield 3.2%
- Pennon (LON:PNN), current dividend yield 3.9%
- United Utilities (LON:UU), current dividend yield 3.7%.
3. Transport – Labour will bring private rail companies back into public ownership as the franchises expire. This will still cost a significant amount of money in terms of the purchase of the outstanding rolling stock. There will also be an extension of HS2 into Scotland, building a Crossrail of the North, Crossrail 2, and build a New Brighton Main Line for the South East.
- Stagecoach (LON:SGC), current dividend yield 5.3%
- Go-Ahead Group (LON:GOG), current dividend yield 5%
- National Express (LON:NEX), current dividend yield 3.3%
- Firstgroup (LON:FGP), no dividend.
4. Housebuilding – Labour has said it will introduce a new Department for Housing with a pledge to build at least 100,000 new council and housing association homes per year for affordable rent or sale.
- Bovis Homes (LON:BVS), current dividend yield 4.9%
- Crest Nicholson (LON:CRST), current dividend yield 4.3%
- Taylor Wimpey (LON:TW), 1.5%
- Persimmon (LON:PSN), 4.4%
- Barratt Developments (LON:BDEV), 2.99%
- Redrow (LON:RDW), 1.7%.
5. Banks –Labour will overhaul the regulation of our financial system, putting in place a firm ring-fence between investment and retail banking that will protect consumers. They will take a new approach to the publicly-owned RBS, and launch a consultation on breaking up the bank to create new local public banks that are better matched to their customers’ needs. They will extend existing Stamp Duty Reserve Tax to cover a wider range of assets, ensuring that the public gets a fairer share of financial system profits.
Labour will change the law so that banks can’t close a branch where there is a clear local need, putting their customers first.
- HSBC (LON:HSBA), current dividend yield 5.8%
- Lloyds Banking Group (LON:LLOY), current dividend yield 3.6%
- Barclays (LON:BARC) current dividend yield 1.4%
- Royal Bank of Scotland Group (LON:RBS). Santander (MC:SAN), TSB, Co-operative, Metro and Virgin Money (LON:VM).
6. Tobacco Companies – the Labour Party has pledged to introduce a Tobacco Control Plan, however there are few details on what form it would take.
- British American Tobacco (LON:BATS), current dividend yield 3%
- Imperial Brands (LON:IMB), current dividend yield 4.2%.
7. Royal Mail (LON:RMG) – reverse the privatisation of Royal Mail at the earliest opportunity. Current dividend yield 5.2%.
8. Defence contractors - the suspension of arms sales for use in the Middle East until an investigation is held into Saudi air strikes in Yemen. Labour will also cease exports to countries where there is concern they will be used to violate international law. There is also the prospect that we might see further discussions about the future of the Trident nuclear deterrent, where Babcock just saw its order book swell to over £30bn worth of future work on refitting the weapons systems earlier this year.
These are some of the companies that could well be affected by the impact of a Labour win, though it is likely there could be more if the various changes to business taxes and regulations filter down into the ability of these companies to make future investment decisions, generate profits, and make returns.
DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.