Emissions trading will hurt most, says UBS

Age
Thursday 4/9/2008 Page: 2

Babcock and Brown Wind, Woodside Petroleum, Energy Resources of Australia and Paladin Energy have been identified as among the companies that will benefit from an emissions trading scheme, according to a "winners and losers" analysis by UBS investment research.

A 120-page risk and opportunity assessment of Australian and New Zealand stocks by investment bank UBS has found that the utilities, uranium and some agriculture companies are in a prime position to benefit from a carbon-constrained economy while the major airlines, coal and manufacturing sectors will be the hardest hit. UBS's top five stocks to own include Babcock and Brown Wind, Contact Energy, Energy Resources of Australia, Paladin Energy and Woodside, with a price target 13% to 41% above the current share price once an emissions trading scheme comes into play during 2010.

"We believe these companies have the greatest positive exposure to climate change and/or have climate change as their key driver," the report said. Air New Zealand, Virgin Blue, Brisbane's RiverCity Motorway, AWB and the coal sector are among the companies that will be most adversely affected. "With the exception of uranium, we expect most resources to be negatively impacted by climate change in the long term, generally through higher costs and lower demand," the report said.

Other companies that UBS identifies as benefiting include WorleyParsons, due to its scope to increase liquefied natural gas development, Gunns, for its potential biofuels options and wood demand, and Asciano, as freight moves from road towards rail and shopping.

UBS expects generators to invest in carbon-reducing technology, low-emission generation and renewable energy. "Companies will also compete in the marketplace to appear 'greener than green'," the report said. UBS said it expected more stocks to be harmed than to benefit. Those to be hurt include some less obvious stocks such as Coca-Cola Amatil, Foster's Group and Lion Nathan, due to factors such as embedded carbon in transportation.

"We see the food and beverage sector suffering margin compression from the increased cost of regulatory demands, raw material inputs and capex (capital spending) for technology improvements," UBS said. Toll roads will be hit as petrol prices rise, paper producers, due to rising energy costs, metals and manufacturing, with higher raw material and production costs, and airlines as negative demand and higher prices of jet fuel start to bite.

Link www.ubs.com