Shares in SSE (SSE.LN) and Centrica (CNA.LN) briefly
rallied early Monday after the government said the UK's biggest energy
providers would cut customers' gas and electricity prices to reflect regulatory
changes.
"The move takes some political pressure off the
companies, though we continue to expect affordability concerns to limit group
earnings growth for the companies in the medium term," says Deutsche Bank.
Analysts at DB add that Centrica (owner of British Gas) and SSE look vulnerable
to the risk of direct retail price or profit regulation, as they are the
largest retailers with the biggest margins. "Group earnings growth for
both companies depends on higher retail prices in the face of political
opposition," according to analysts.
DB
downgrades its recommendation on Centrica to "hold" from
"buy" and maintains a "hold" recommendation on SSE with a
reduced price target of 1280p from 1400p. On the market today SSE trades flat
at 1327p from a session high of 1343p, while Centrica is down 0.1% at at 338p
from a high of 342p.