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Tory bounce for utilities and outsourcers

Shares in outsourcing and energy groups shot up following the Tory election win
May 14, 2015

The unexpected majority gained by the Conservative party last week saw share price gains for those in the sights of a more interventionist Labour party. Unsurprisingly, energy companies SSE (SSE) and Centrica (CNA) enjoyed a share price uplift on the day the outcome was announced. Investors were relieved utility companies would not face the prospect of Labour's energy market reforms, including a planned price freeze on energy bills until at least January 2016. The companie' shares rose 5.3 per cent and 8.1 per cent, respectively.

Both utility companies have had a tough time, with their 2013 and 2014 trading figures suffering due to warmer weather and higher wholesale energy costs. The spectre of the Competition and Markets Authority's investigation also looms over the sector, with initial findings expected in June.

Shares in government outsourcers also surged following the election. Recruiter and welfare-to-work provider Staffline (STAF) was one of the biggest beneficiaries, after its shares rocketed by more than a fifth to 1,176p in the two days of trading after the election result was announced.

Continuity of a Conservative government means minimal disruption to ongoing projects, concluded analysts at UBS. Labour had also planned to crack down on outsourcers, including reducing their role in delivering the government's back-to-work programme. Shares in Serco (SRP), Capita (CPI) and G4S (G4S) rose 6 per cent, 7 per cent and 3 per cent, respectively.

Babcock International (BAB) led the FTSE 100 rebound following the election, with its shares rising 9 per cent on the first day of trading after the election. The outsourcer is the Ministry of Defence's second biggest supplier and takes around 55 per cent of its revenue from the UK public sector. It is currently in a consortium with BAE Systems (BA.) to upgrade the Trident nuclear submarine fleet, something the Scottish National Party opposes. In this regard, averting a leftwing coalition involving the party also provided succour to the market.

Investors in the big UK banks also welcomed the election of a Tory government. Labour had promised a further increase to the bank levy, while commentators raised concerns that a leftwing government was more likely to meddle in the running of the taxpayer-owned banks. Shares in Lloyds Banking (LLOY) and Royal Bank of Scotland (RBS) both rose 6 per cent following the election result.