Shares in National Grid (NG.) were under pressure despite publication of an ostensibly solid set of numbers for its March year-end. The group, in common with some other utilities, is seen as a bond proxy by the market, so the minutes from the US Federal Reserve's April policy meeting, pointing to a possible rate rise, weighed on the share price. You could argue that this is unjustified, given that there's no long-term correlation. But there are active short-term trading positions, so the group's share price fell despite news of a double-digit increase in adjusted earnings and a 50 basis point increase in equity returns to 12.3 per cent. Performance was boosted by the UK importing cheaper power from France, with operating profits at the group's French interconnector cable business up by a fifth to £123m.
The UK regulated business outperformed on that basis, delivering a return on equity of 13.3 per cent. Returns across the Atlantic were subdued by comparison, as some operations were constricted by old rate plans. The growth of National Grid's UK asset base was held in check due to deflationary effects; a 3 per cent rate of regulated asset base growth (RAV) was half that achieved in the US, although it's worth noting that the combined rate was still in advance of the previous year's.
The imperative to replace creaking gas and electricity infrastructure is obviously intrinsic to National Grid's growth strategy. The group continued to expand its networks, with annual capital investment up £400m to £3.9bn. It managed to double its distributed generation connections in both New York and Massachusetts, while connections trebled in Rhode Island. US regulated capital investment is expected to increase in 2016-17. In addition, the UK electricity transmission business commissioned the first high-voltage substation in London for 20 years.
Last November, National Grid announced that it was seeking buyers for a majority interest in its domestic gas-distribution business to create extra value for shareholders. The sale process is now expected to complete in the fourth quarter of this year, or early 2017.
JPMorgan Cazenove expects adjusted cash profits of £5.7bn, leading to EPS of 60.26p for the March 2017 year-end, against £5.6bn and 61.59p in 2016.
| NATIONAL GRID (NG.) | ||||
|---|---|---|---|---|
| ORD PRICE: | 977p | MARKET VALUE: | £36.6bn | |
| TOUCH: | 976.7p-977.4p | 12M HIGH / LOW: | 1,016p | 806p |
| DIVIDEND YIELD: | 4.4% | PE RATIO: | 14 | |
| NET ASSET VALUE: | 362p | NET DEBT: | 187% | |
| Year to 31 Mar | Turnover (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 13.83 | 2.56 | 55.6 | 39.28 |
| 2013 | 14.36 | 2.71 | 57.8 | 40.85 |
| 2014 | 14.81 | 2.75 | 65.7 | 42.03 |
| 2015 | 15.20 | 2.18 | 53.2 | 42.87 |
| 2016 | 15.12 | 2.39 | 69.0 | 43.34 |
| % change | -1 | +10 | +30 | +1 |
Ex-div: 2 Jun Payment: 10 Aug *Includes intangible assets of £6.2bn, or 166p a share | ||||
