National Grid Share Discussion Threads

[redartbmud] 21/7/2013 19:24

Pierre

I trust that your blood pressure is now back to normal.

I was referring to the fact that, before privatisation, the government could/should have spent more on infrastructure up-grade/renewal.

And yes, the government control Ng spend, profits etc etc. It is a cheap way of running a public service - get someboady else to fund it! That said I have a significant stake.

The bigger the capex, the bigger the interest bill!!


red

[rcturner2] 21/7/2013 06:55

Thanks guys.

[darias] 20/7/2013 13:18

RCT

Redart has highlighted points I was trying to make.

To put it simply - the company had large cash reserves to 2008. So what did the company do with the reserves? As Redart says it did not invest the money to "fix infrastructure". It did not even draw down debt to take its business out of the hands of the money lenders. What it did was buy back shares - not from me or you but from the hedge funds, insurance companies and banks the same organisations that lent them money in the first place.

NG continued to pay a handsome dividend.

4 years later and it comes back to the market because, I assume, the regulator says that they have to "fix infrastructure". Perhaps if they had earlier paid down debt they could have borrowed some more and not needed to come back to the shareholders for more money.

As I have said before the board play with money rather than run a company. When their games go wrong they have a rights issue.

NG. is an established company with predictable cash flows so why does it need a rights issue? It has long gone past the "growth stage" of development.

My company has this year gone for growth. This has been funded by borrowing and a rights issue. I like to think that we would only have been able to borrow more money as, for the last 19 years, I have been vigorously reducing debt so that total borrowings, even now, are less than when I borrowed to set up the company. This is simple economics and NG board have demonstrated to me that they don't understand simple economics.

[pierre oreilly] 20/7/2013 10:07

Where do you get that there has been a huge underinvestment by ngc? It's nonsense I'm afraid.

The regulator dictates the infrastructure investment, as he also dictates the return made on that investment. NGC income is simply an uplift on the traded electricity, and there is (virtually) zero risk there (apart from regulator rsk). This isn't a normal company, it is central to the social infrastructure and even the defence of the UK believe it or not, and hence why the government always has and always will dictate its whole operating environment. It is inconceivable that the company will ever be 'in deep doodoo'.

The main investment to come (50% from operations and 50% straight on customer bills iirc) is almost all due to 'renewables' connections, especially offshore wind which is external to the current footprint. Not only are the costs extremly high in getting the capacity to the footprint, but also the upgrades necessary to improve the resultant transmission constraints they cause within the footprint are very high - especially when you consider the total capacity has to be handled, and yet that the average power transmitted will be about a quarter of the capacity. The power is also non-dispatchable, i.e. grid engineers can't instruct the plant what to generate when in order to match demand, so may have to handle high power at low demand times, which causes problems for the grid, and also may not get any power during periods of high demand when needed most.
Another development, also to reduce transmission constraints, are the bootstraps, bringing lots of power from Scotland (where there is an excess) straight down well into England bypassing the existing grid altogether, getting the power to where there is a deficit and lack of capacity (SE Engand).

There has been no lack of investment in the grid so far, just a new very large requirement from renewables, wind mainly, for very large extra investment (for a relatively small benefit), but the regulator says it has to be done, so it will be, and ngc will be rewarded by a good financial return on that (poor in normal terms) investment, also dictated by the regulator.

[redartbmud] 19/7/2013 07:41

AGM 29th July I believe.

RCT
Ng has to spend a lot of money to fix an infrastructure on which there was huge under-investment for decades.
It also has to up-date and extend the network.
They announced a £20 billions capital programme, over the next few years, from memory.

They do get a return from these investments, but they are monitored and regulated.
The trick is to balance the cost of borrowing against the income generated. If/when borrowing costs rise, selling prices fall then deep doodoo becomes a possibility.

red

[rcturner2] 19/7/2013 07:12

Darius - surely when the company borrowed in order to "deliver attractive returns to shareholders", that means they will invest the money to generate an income, not simply pay out the borrowing as a dividend?

[miata] 08/7/2013 14:02

Perhaps the truth lies in the middle, personally I think 660 is a very low target given the 5.4% yield.

Date Broker name New Price Old price target New price target Broker change
31-May-13 JP Morgan Cazenove Neutral 784.50p 785.00p 735.00p DownGrade
10-May-13 JP Morgan Cazenove Neutral 823.00p 720.00p 785.00p Reiteration
23-Apr-13 Bank of America Neutral 807.50p 735.00p 800.00p DownGrade
22-Mar-13 HSBC Overweight 753.50p 780.00p 850.00p Upgrade
18-Mar-13 JP Morgan Cazenove Neutral 735.00p 640.00p 720.00p Upgrade
25-Feb-13 Credit Suisse Outperform 717.50p 770.00p 770.00p Reiteration

[skinny] 08/7/2013 08:06

Take your pick.

Deutsche Bank Sell 753.25 749.00 660.00 660.00 Retains

Morgan Stanley Overweight 753.25 749.00 880.00 880.00 Reiterates

[pal44] 25/6/2013 07:53

is it a question of money supply . looking very oversold at the mo..

[darias] 24/6/2013 15:59

It is never cheap to borrow money. The lender lends to make a profit and the profit comes from the borrower's exertions, trades or investments. I accept that borrowing is often necessary. My business has just taken on additional borrowing to invest further in property. (You should understand that I will be repaying that debt as quickly as I can).

What I cannot accept is borrowing to "deliver attractive returns to shareholders". Especially after many years of buying back shares from the bankers, hedge funds and insurance companies.

The only way for rates to go now is up especially after we are told that QE in the states is going to end - all those bonds coming onto the market are bound to increase yields hence rates. That is why we have seen the market getting caned. Remember it can always go lower.

[redartbmud] 24/6/2013 14:01

Darias

I agree on the size of the debt, but the company has a big infrastructure programme to deal with.
The FD said that it is cheap to borrow money at present, and the market is happy to lend. They can make a positive return on the borrowings.
It remains to be seen what will happen when rates go up, but that may not be seen for the next 18 months to 2 years hence.
For now the market has taken a view on high yielding regulated utilities and have marked them down IMHO.

red

[darias] 24/6/2013 11:46

Thank you for your opinion. You really should consider why you "invest". Surely you don't believe it gives you a say in how the company is run? NG. is run for the benefit of the bankers, hedge funds, insurance companies and the PI can go hang as far as the board are concerned.

As for ramping, did you not see my opinion in the last post that I still think debt is too high. I do not ramp or deramp. I merely report what company's say and formulate opinions and dealing strategies from that. We did not short the stock merely got out according to our strategy. We may buy more if it drops further but we are very unlikely to take up rights in order to "deliver attractive returns to shareholders".

[pierre oreilly] 24/6/2013 09:55

You can buy and sell as you wish, no problem with that.

The problem I have with people like you is that you have no idea of the underlying functions of the company you invest in, and simply ramp away when you hold (no doubt we have some of that to come), and slag the company off when you have sold.

I expect you probably think that your posts on here have caused the price drop, and you bullish posts to come will make it rise. That wouldn't surprise me at all.

There has been a drop of a larger magnitude in almost high divi shares (and gilts), ng. hasn't done anything particularly different from the market, except not dropped by as much, ex div. All the factors you were slagging off last week are still in place now (if they were last week). You don't buy a ponzi scheme, debt ridden company who only pays dividends from cash raised in rights issues because it's 10% cheaper! You're a disgrace in my opinion.

[darias] 24/6/2013 06:36

Pierre

The club buys shares in order to make money. NG., when we sold, was trading around 12.5% more than the current price therefore the yield on the dividend, if maintained, represents better value than when we sold especially if other mugs take up any rights to maintain the dividend. I still feel that debt is too high. Note the fact that we have come back in with a smaller amount invested.

I also like to post when we take a position rather than, like many, on advfn who dream that they have taken a winning position after the event. Even you must agree to sell at £8:33 and buy back only 3 weeks later at £7:40 is not bad business.

In any event it was you who suggested that I thought that it was a "giant Ponzi Scheme" I merely compared it to a Ponzi Scheme and pointed out a major difference.

Why would our investment decisions concern you?

Regards.

[pierre oreilly] 23/6/2013 16:44

So it's not a Ponzi scheme today. And is 80% debt not too bad afterall? And what happened to the dividend which, according to you, is simply paid out of the money it keeps raising in rights issues? You're investing in a company which only last week you thought was the pits? How strange.

[darias] 21/6/2013 06:59

We're back in.

Lot smaller investment than before

[darias] 10/6/2013 14:09

That is what makes a market - different opinions. :-)

[pierre oreilly] 10/6/2013 08:16

In in my view, your last sentence indicates a lack of appreciation of how this company is different from most others, where your view may apply.

NG. is central to our energy supply, and is a critical component of the Uk's well being, even to the extent of being central to our defence. Hence why it is government controlled (as it always has been, formerly as the intelligent central part of the cegb, and even after it's privatisation) while at the same time being non-nationalised. The governemnt, via the regulator, gives ngc a return on investment to keep it viable and it's functions active. It wouldn't let debt - or anything else - be a threat to its survival or even it's allowable investor return to any great extent.

The risk here is, imo, not as you indicate, but almost purely on the whim of the regulator/government who effectively decide the level of its returns. (for example, if interest rates rose and NG had large debt linked to it, then the regulator would allow an extra uplift to cover the extra interest, in my opinion). But don't expect to find an rns with that stated.

[darias] 09/6/2013 13:08

It was not ordered by the regulator to spend "billions on infrastructure"

"The Board believes that raising £3.2 billion through the Rights Issue will give it the scope and appropriate financial flexibility to deliver the Group's strategy. In particular, the Board believes it will allow the Group to fund a significant increase in capital investment and continue to deliver attractive
returns to shareholders, whilst maintaining single A credit ratings for National Grid's UK operating companies in a more volatile economic environment. The B oard also believes that raising equity today will strengthen the Company's long-term competitive position to take advantage of an appropriate
share of UK growth opportunities."

So there is the admission that the rights issue was to "deliver attractive returns to shareholders" in other words give us your money and we will maintain our attractive dividend.

As for the buy backs where is the evidence that this supported the share price. Between 2006 and 2008 when buy backs were taking place the share price went from £6 to £7:10 from the beginning of 2008 when most share buy backs took place the price fell from £8:60 to £7:10 with a low of £6:40 so all you can say is that the share buy backs would have prevented the stock falling further.

As far as regulation is concerned much of the capital investment was in America and not regulated by our government.

As for net debt compare it to Centrica where net debt is 73% (according to ADVFN) BG. another privatised company net debt is only 50%(according to ADVFN) and they have discovered gas/oil of the south american coast.

Debt puts a company in the hands of the financiers with constant vigilance required with regard to interest rates.

[pierre oreilly] 09/6/2013 11:48

I don't really understand what points you are trying to make. Is it that they have had both share buybacks and rights issues? Like thousands of other companies. The timing and scale are completely different - buybacks when the company has spare cash to support the share price, and rights (on a scale orders of magnitude larger) when it is ordered by the regulator to spend billions on infrastructure.

What's the debt to asset ratio of similar companies? Is 80% unusual? The income stream is guaranteed for ng. , simply a markup on the electricity as it is passed from generator to supplier. No risk there, no bad debt, just a guaranteed and predictable cash income. The markup is arranged by the regulator as a return on assets, so the more billions ng spends on infrastructure, the more income is guaranteed.

As for acting like a nationalised company - well it is, in all but name. It really has little freedom to do anything at all without the government, via the regulator, giving the go ahead, and you might as well view the regulator as the MD who formulates almost everything it does.

Fair enough if you don't like this company, and fair enough if you are shorting it. But I really don't think you are talking much sense.

[darias] 09/6/2013 11:05

I suppose it could be compared to a Ponzi scheme however with the Ponzi scheme that organisation did not generate income. National Grid does generate income but do not seem to pay off debt. Debt represents, according to ADVFN, over 80% of their assets.

[mroalan] 09/6/2013 10:57

Cheers,so its a ponzi scheme,more debt than assets?

[darias] 09/6/2013 10:41

The company shares are owned by the major insurance companies and trust funds and they just keep taking the money and fees on buy backs and rights issues.

[darias] 09/6/2013 10:40

Following reports the rights issue note 2 for 5.

hxxp://www.nationalgrid.com/NR/rdonlyres/17606A5B-3621-4968-A7D3-3DE7D97B7C6F/41271/Otago135cStatementFINAL.pdf


Following was the last buy back of shares in September 2008

hxxp://otp.investis.com/clients/uk/national_grid/rns/regulatory-story.aspx?cid=374&newsid=74611


Which had been going on since 2006 with money borrowed

hxxp://otp.investis.com/clients/uk/national_grid/rns/regulatory-story.aspx?cid=374&newsid=73939

It is my view that the company plays with money rather than develop a real strategy. More than any other privatised company this behaves like a nationalised organisation with access to easy money and a captive market.

[mroalan] 09/6/2013 09:52

Darias 9 Jun'13 - 10:31 - 2737 of 2737 0 0

"The dividend yield on this company has been paid by dilution after a period of share buy backs. The board need to answer a number of financial questions but the insurance companies do not want to rock the boat."
Darias, could you explain please?