Cutting carbon emissions will cost households £530 a year, says the Committee on Climate Change, but increased funding for green technology and other sectors could offer a silver lining for investors.
The FTSE 100 fell after the budget and closed the week up 1.5% at 4,156. Investment experts are turning increasingly bullish, however, on areas likely to benefit from extra government funding — green energy, housing and the automotive industry. Many stocks in these sectors have done badly over the past 12 months but now look cheap.
We offer some stock tips:
CARS
A scrapping scheme to give £2,000 toward a new car to owners of vehicles older than 10 years has boosted investor interest in the motor industry. Inchcape entered stockbroker TD Waterhouse’s top 10 buys last week and the dealer’s share price rose from 16p to 18.8p since the budget announcement.
Electric car development is also likely to get a boost after the government said it would introduce a £5,000 incentive for buyers of eco cars in 2011. Firms that develop car batteries — which account for nearly half the price of an electric car — could be a good bet.
Simon Webber, manager of the Schroder Global Climate Change fund, likes the French firm Saft, which recently signed a contract with Ford to produce batteries.
BYD, a Hong Kong battery manufacturer, is also a big player in this area. It produces electric cars for China and plans to target the US market. Warren Buffett, one of the world’s most successful investors, bought a stake in BYD late last year.
GREEN ENERGY
With government plans to invest £525m in renewable power — providing a boost for firms involved in clean energy — Webber favours wind turbine makers such as Vestas in Denmark and Gamesa of Spain, which is part of Iberdrola, one of the world’s top energy firms.
Chancellor Alistair Darling also gave £435m toward supporting energy efficiency in businesses, public buildings and households. Seb Beloe, head of socially responsible investment at fund manager Henderson, said Kingspan and SIG, based in the UK and Ireland respectively, are well placed to benefit from this — being leaders in insulation products.
He also likes Bglobal, another UK-based firm, which produces smart meters that help businesses and households to monitor their energy usage. It has signed agreements with British Gas, Npower and Scottish & Southern Energy.
Webber thinks video conferencing technology will benefit and likes Tandberg, a Norwegian firm and Cisco in the US.
CLEAN COAL
David Miliband, the energy and climate change secretary, said last week that up to four “clean” coal testing plants would be built to trap C02 emissions and bury them underground.
National Grid, which maintains Britain’s electricity and gas pipelines, stands to benefit. It could convert gas pipelines to carry C02 in four years.
Terminals in Scotland and Teesside have been identified for coal collection before the carbon will be shipped offshore and then pumped underground. Beloe said: “North Sea oil and gasfields which have been depleted can now be used to store gas for thousands of years.”
Another good play is RPS, an environmental consultancy that assesses the geographical suitability of areas for the purposes of carbon capture.
Nviro Cleantech, which develops technology to make coal “cleaner” — by extracting chemicals such as sulphur and nitrous dioxide before it is burned for fuel — could also fare well.
OUTSOURCING AND TRAINING
The government is planning to tackle part of its debt mountain by making “efficiency” savings of £9 billion by the 2014-15 tax year. One of the ways it could do this is to outsource back office jobs to private business.
Jonathan Jackson at financial services firm Killik tips Capita, which already provides back office services for the government. That contract accounts for about 50% of its business. Serco is another big player.
Darling’s budget guaranteed a place in education and training for all 16 and 17-year-olds. It could result in 54,000 extra students in the next academic year. Shares in Pearson, the educational publishing giant, could reap rewards. It could also benefit from the $228 billion (£155 billion) that the US administration plans to put towards a programme of school building.
HOUSING
A £600m boost for the house-building sector is likely to help the construction industry, which has been battered by the economic and property market slump. The government’s aim is to build 240,000 homes a year by 2016, though in the last tax year only 207,000 new houses were completed.
Shares in builders have begun to rally. Taylor Wimpey is down 71.5% over 12 months, but in the past six months is up 331%, broker Cantor Fitzgerald said. Barratt Developments is down 60% over 12 months but up 168.8% over six.
INFRASTRUCTURE AND TECHNOLOGY
More than £15 billion will be ploughed into the rail industry by the government in the next five years. This is in addition to £3 billion of infrastructure investment that was brought forward to this financial year as part of last year’s economic stimulus package. That money will be put towards upgrading the water distribution network as well as railways, research and development.
Beloe at Henderson tips the Keller Group. It specialises in assessing foundations for infrastructure projects, such as railways, utilities and public buildings. He is also attracted to Invensys, a consultancy that specialises in the rail signalling business.
Tax credits for research and development are to be extended, which should help companies in the biotech industries. Lee Robertson, chief executive of Investment Quorum, likes pharmaceuticals group Vectura, which specialises in “inhaled therapies” and has developed a range of inhalers for asthma sufferers, as well as Renovo, which develops products to prevent and reduce scarring.