PhillipCapital analyst Terence Chua has kept his “accumulate” call on Sembcorp Industries (SCI) with an unchanged target price of $3.68, expecting the UK consumer energy bills cap to have a subdued impact on the company.
In his Sept 15 report, Chua notes that the UK prime minister Liz Truss has capped consumer energy bills at £2,500 ($4,011) for two years to cushion rising energy prices. For businesses and public sector bodies, a sixth-month scheme will offer equivalent support to that for households, with a review in three months about how it could be better targeted.
SCI has 1.3GW of energy assets in the UK, consisting of energy generation and battery storage. The UK is not a significant contributor to SCI’s overall portfolio of energy assets, which are concentrated in Southeast Asia, China and India, Chua highlights.
“SCI’s contract with the national grid of the UK means that it generates electricity through a portfolio of diesel and gas generators. The price cap imposed limits the amount that it can charge for its tariffs. The difference between the power in the wholesale markets, and the capped consumer price, however, is expected to be borne by the UK government,” Chua explains.
Truss has also announced a review of the government’s net zero strategy, which is argued as necessary under the current landscape. The review could potentially impact demand for energy storage, although Chua notes that this is still uncertain at this stage.
“[Truss] has announced schemes she said would increase energy resilience, including launching about 100 new oil and gas licenses along with dozens of new North Sea licenses in an effort to boost domestic oil and gas production.
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“In the last 10 years, the UK has made significant progress to decarbonise its power sector. It has grown its renewable share of electricity generation from 7% to 43%. This has led to increased demand for energy storage, in which SCI is operating one of the largest energy storage portfolios in the UK at 120MWh,” says Chua.
SCI is currently in the midst of building a 360MW energy storage system at Wilton International on Teesside, which will help the UK achieve its net zero target.
Chua’s target price of $3.68 is based on 1.2x P/BV, the average of its peers.
As at 10.48am, shares in SCI are trading 6 cents lower or 1.86% down at $3.16.
