Few investors will have breatheda bigger sigh of relief at the election result than those holding shares in Centrica (LSE: CNA) (NASDAQOTH: CPYYY.US) and SSE (LSE: SSE).
The two utility giants have been under a cloud since Labour leader Ed Miliband pledged to freeze energy bills for 20 months if he were to win the election.
That pledge can now be consigned to history. Instead, Miliband is the one being frozen out.
High Energy
Along with the banks, the utility companies are the big FTSE 100 winners from the election, as the markets look forward to five more years of the Conservatives.Or rather, as they breathe a sigh of relief that we dont have five uncertain years of minority government or unstablecoalition.
While the FTSE 100 is up 1.74% as I write, British Gas owner Centrica has leapt6.84% and SSE is enjoying a5.54% bounce.In a night of surprises, one of the few certainties was that these companies would sizzle if the country went cold on Miliband.
Bad Business
Its hardto overestimate the damage the threat of a price freeze has done to both stockssince September 2013.
Centrica fell from a high of nearly 400p andmanagement warned that Milibands plans could even put it out of business. Even after todays early-morning leap, you can still buy it for 282p, or 13.41 times earnings.
SSE wasnt hit quite as hard by Milibands populist pledge, but its share price has gone nowhere for two years, until today. It tradesat just 12.67 times earnings.
The Heat Is Still On
Investors shouldnt celebrate too much, given thatordinary people really are struggling to heat their homesand are left wonderingwhy the much-publicised collapse in energy prices hasnt fed through to their own bills.
In February, British Gas cut its prices by just 5%. SSE cut its prices by 4.1%, shrinkingthe average gas bill by just 28 a year. So, when the cold weather kicks in this autumn both Centrica and SSE could both find themselves in political hot wateragain.
They have other problems, too. Moodys downgraded Centrica in March due to lower energy prices and generally poor trading conditions, which have hit its profitability.And that was despiteCentrica cutting its dividend by 30% in the wake ofa 35% drop in 2014 operating profits. It is stillon a respectable forecast yield of 4.7% for December.
SSE has lost business to independent suppliers as customer dissolution over high energy prices persuaded more to switch.It may struggle to deliver meaningful growth, but at least management has pledged to increase its dividend,currently a juicy 5.20%, by RPI.
Both companies face challenges, but investors will feel more confident about their ability to tackle them now that a great weight has been lifted off their shoulders.
Plenty of FTSE 100 stocks offer dividend yields of 5% or even 6%, often with better growth prospects as well.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Centrica. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.