Emissions trading will hurt most, says UBS

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 said it expected more companies to be harmed than to benefit.

Its top five stocks to own include Babcock & Brown Wind, Contact Energy, Energy Resources of Australia, Paladin Energy and Woodside Petroleum, 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 are 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.

Those to be hurt include 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 jet fuel prices bite.

KEY POINTSUtilities, uranium and some agriculture companies will be among the winners.

Airlines, coal producers and manufacturers will be among the losers.