If you’re a FTSE 100 investor then 2019 may well look like a shark tank right now.
There’s a broad blend of problems that could send the index into a tailspin next year, from the impact of a cooling Chinese economy and fresh bouts of trade tensions on the index’s mining giants to rising competition and shredded consumer confidence on the retailers.
In the current climate you need to be cautious and on your toes. Share markets remain the best place to sink your savings, in my opinion, but there are lots of pitfalls that we as investors need to be aware of. This article looks at some more battered blue-chips that could sink without a trace in 2019.
2018 proved to be another nightmare for SSE(LSE: SSE), its share price dropping 20% since the turn of January.
But we shouldn’t be surprised at this. The threat posed by the independent suppliers has been there for the best part of a decade, and in that time the so-called Big Six suppliers have gradually seen their customer bases erode. Mounting pressure on household budgets has continued the trend this year and, with the domestic economy flailing, it’s threatening to worsen in 2019.
Reflecting this, as well as the increasingly-hostile regulatory backdrop, SSE planned to merge its retail unit with that of Npower. But those plans began to unravel last month when new Ofgem price caps prompted fresh discussions on the merger, a development that caused the Footsie firm’s share price to sink. The worst was confirmed yesterday, SSE declaring that “it is not now in the best interests of customers, employees or shareholders to proceed with the transaction.” It would now consider a variety of options for its retail business, it said, including a standalone demerger and listing or a possible sale.
Another risky pick
More than half a dozen energy suppliers have gone to the wall this year alone, underlying the difficulties of creating profits in the current climate. So the prospect of SSE remaining saddled with its retail division doesn’t bode well.
This difficult backdrop is also weighing on the outlook for fellow FTSE 100 play Centrica (LSE: CNA), although it share price has fared better than SSE so far this year thanks to the impact of a stronger oil price for its Centrica Energy production arm. It’s down just 1% in the year to date.
However, crude prices have started sinking again amid fresh fears over market oversupply, worries that have pushed Brent back below $60 per barrel and which threaten to spread in 2019 as the global economy loses steam. With this key support strut now looking shaky, Centrica’s share price could find itself getting battered again.
I’m not bothered by their low forward P/E ratios of 13.6 times and 11.3 times respectively, nor their giant dividend yields of 9.2% and 8.8%. For me, SSE and Centrica are in danger of suffering serious and sustained profits falls beyond the drops currently predicted for their current fiscal years. And this would obviously exacerbate concerns over both firms’ already-mountainous debt piles. The risks are rising and I wouldn’t be surprised to see an exodus of investors in the new year.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.