JP Morgan reiterates positive stance on UK energy

The opposition parties first called for a windfall tax earlier this year, after surging wholesale oil and gas bills boosted corporate profits while household energy bills rocketed.

The government initially argued that a tax would deter investment in green technology and infrastructure, but as the cost of living crisis continues to mount, the Treasury has changed its stance.

In a report reviewing the potential impact, JP Morgan said: "The debate over a potential windfall tax on the UK energy sector has built in recent weeks, with political rhetoric appearing to move in favour of some form of levy.

"Windfall taxation has been rare in the UK but these are arguably exceptional times.

"At the upper end of a 10-50% ‘excess’ revenue-based 2022 UK levy scenario, we show the impact on the most exposed oil majors - led by BP [and] TotalEnergies - is less than 1% market cap/gearing…while key utilities - Drax, SSE, EDF - appear increasingly distanced from latest policy reports.

"As such we reiterate our positive stance on UK energy."

It noted that the UK-exposed stocks with ‘overweight’ ratings were Shell, BP, Repsol, EnQuest, out of the oil majors, and RWE and Drax among utilities.