Drax suffers as levy blows fuse
OUCH! Phil Cox, new chairman of Drax, saw more than £65,000 of his recently acquired investment in the UK power producer go up in a puff of smoke.
He now sits on a big paper loss after Chancellor George Osborne confirmed that he would scrap the ‘outdated’ climate change levy. Cox bought 60,000 shares at 364p a pop on June 22 and watched them yesterday collapse to close at an all-time low of 254.6p, a stonking 99.3p or 28pc fall.
Osborne said he would remove the exemption generators of renewable electricity have had from the climate change levy where tax is not paid on renewable electricity supplied to businesses and the public sector under renewable source contracts, regardless of whether it is generated in the UK or abroad.
The levy was introduced in 2011 to improve industrial and commercial energy efficiency to reduce greenhouse gas emissions. Broker Goldman Sachs estimated Drax could face a £50m hit to earnings.
It’s been a disastrous year far for Drax shareholders, including Invesco (26pc), Schroders (11pc) and Woodford Investment Management (5pc). In February, the dividend was slashed following a sharp fall in underlying earnings in 2014 and cuts in its expenditure budget by 25pc.
Drax was the biggest casualty but housebuilders and estate agencies were friendless after Osborne said the Government will taper the mortgage tax relief that can be claimed by buy-to-let landlords to the minimum tax rate from 2017. London-exposed companies were unhappy with the decision to abolish permanent non-dom status, which could unsettle the property market.
Barratt Developments lost 36p to 594.5p, Taylor Wimpey 9.3p to 176.2p and Persimmon 92p to 1876p. Estate agency Foxtons shed 9.8p to 211.1p and online property group Zoopla 7.6p to 230.1p. Seemingly against the odds, the Footsie was resilient and rallied 58.49 points to 6490.70.
Dealers expected the index move further south in the face of the worsening China crisis and on the growing likelihood that Greece could soon be saying cheerio to the Eurozone. Dragged lower by Drax, the FTSE 250 fell 100.07 points to 17112.86.
Traders on Wall Street had to contend with a technical glitch which caused trading to be suspended in all securities for a short time. It didn’t do for frayed nerves and the depressed Dow Jones closed 261.49 points down at 17,515.42.
American broking giant Bank of America/ Merrill Lynch provided some salvation by advising clients that markets are beginning to get oversold. It sees another possible legdown on a Grexit, but any such sell-off would provide a buying opportunity. It believes the European Central Bank will be able to limit the contagion from any Greek turmoil and sustain the recovery in the euro area.
Defence giant BAE Systems advanced 15.4p to 460.9p after the Government committed to maintaining its defence spending at NATO’s target of 2pc of gross domestic product every year for the rest of the decade.
Retailers came on offer following the planned introduction of a national living wage which will see increases in the minimum wage to £7.20p in April and to £9 by 2020. Marks & Spencer, which reported yet another quarterly fall in clothing sales on Tuesday, cheapened 13.5p to 521.5p and Morrisons 2.5p to 167.4p.
Challenger banks were bashed on news the levy on bank balance sheets is to be replaced with an 8pc surcharge on bank profits. Challengers have been exempt from the levy given the small size of their balance sheets. Aldermore plummeted 44.4p or 15pc to 253.7p, Shawbrook 38.6p to 326.4p, One Savings Bank 31.2p to 280.5p and Virgin Money 39p to 395p.
Financial Times publisher Pearson found itself near the bottom the Footsie class with a fall of 11p to 1201p after a Berenberg downgrade to sell from hold. The broker cut its target price to 1090p as it thinks the media giant is not making the grade. It faces headwinds in its US education business, which generates the lion’s share of the profits.
Celebrating the payment of a 53p dividend, property group Daejan jumped 265p to 6055p. Independent Oil & Gas rose 1.5p to 16.5p after giving details of its long-term funding strategy.
Buying in response to disposal news lifted S&U 45p to 2420p. It is selling, conditional on shareholders’ approval, its home credit division to Non-Standard Finance for £82.5m gross or 694p a share. Canaccord Genuity lifted its target price 250p to 2650p.
Nostra Terra Oil & Gas eased 0.005pto 0.145p despite speculation of an imminent deal with Koch. Security provider Westminster dipped 0.5p to 23.5p after settling a dispute with the vendors of CTAC, the high-end security firm it bought in 2010.