National Grid Share Discussion Threads

[m100] 11/11/2015 15:30

With reference to the 'potential predators' there were some large holdings by a couple of sovereign wealth funds in the 1990's Not sure if they were eventually required to divest but iirc they were very substantially over the 5% reporting limit.

I'd take a guess that some of us in here have been shareholders from when Grid was an unlisted company mainly owned by the REC's, that's over 25 years. Many will know the UK operation inside out and decades in the industry both before and after privatisation help cement that certainty about roughly where the company will be in years to come. No doubt 25 years from now it will be different in some respects but the fundamental requirements will remain the same. There is no widget around the corner from Apple, Tesla or indeed anyone else that will make NG obsolete. Energy use will change, it is already reducing. As long as engineering and sound financial management remain at the heart, with an appreciation by Government / The Regulator that NG really do know best then there is IMHO very little to worry about. Yes debt is high, but would any UK government stand around and actually see NG fail? Clearly interest rates will rise at some point but they are not heading to 15% are they? A step change in financing debt for asset acquisition and replacement would surely warrant a reassesment by OFGEM. Renationalisation might be a possibility though :(

I really despair when I see the opinions of investment bankers with target prices that are seemingly plucked out of the sky after a few minutes fiddling with a spreadsheet accompanied with a line of white powder. :) The wires, switches, transformers, pipes, valves, people, expertise, and demand for the service are there for decades to come, the returns on asset value set for substantial periods. Not all investment bankers are like that though, NG has made for interesting conversations with a relative who is Chairman of a very large investment management company, I wish I was a large bundle of used fifties behind him.

Having said there is little to worry about, that is based on being involved in the UK over five decades but with much much less knowledge of the US based operation.

Having seen companies like Ferranti brought down by US acquisions and the witch hunt on BP (despite the >50% holdings by US based funds) the US bit of NG always makes me uneasy no matter what the news is. The place still seems like the wild west only they now wear suits and ties.

I just hope NG stick to what they know and don't get stung in some madcap expansion programme to make more money. The ventures by NG years ago into Argentina and Malaysia were in hindsight not a good investment, at one time it seemed the intention was to compete around the world. Strangely both before and after a number of national utilities from smaller countries than ours seem to have done this relatively succesfully.

[pierre oreilly] 11/11/2015 15:05

And also regarding the brown outs - they only occur because ng expertise has more or less been completely ignored over the last 20ish years, the exact opposite of the previous times when the industry strategy was set with ng (and previously cegb) input.

Get ready for blackouts on winter evenings, maybe this year maybe next or the next after that (there are many factors), but we are now exposed to a really silly and completely avoidable risk of them. Please don't think that ng are the cause of them!

[pierre oreilly] 11/11/2015 14:59

Chairman, yep, everyone can have their views and there's nothing wrong with differing views. I agree that many companies relying on the government (e.g. all 'green' companies relying on the continuation of green subsidies wihout which they won't even survive) are extremely high risk, and i wouldn't touch those at all.

But ng is different. It's remit of electricity supply (i only know about that bit, not gas or us operations) is fundamental to the functioning and social wellbeing of the uk, and even fundamental to the defence of the uk. T he reguilator (a proxy for the government) won't allow ng to be a poor financial performer and will always reward shareholders sufficiently to keep them happy in order to keep the company financially healthy.(and to a major extent of giving the impression that it is a capitalist-type free market company, which it isn't). The rewards, imv, will be good relative to other companies (the regualtor sets the framework for everything including shareholder returns. Indeed, there's no hope of a stellar financial returns as some seem to hope - the regulator has to balance the cost to taxpayers/consumers against shareholder returns. Treat this as a gilt with above average gilt returns would be much closer than looking at debt levels or anything else, in my opinion.

[chairman20] 11/11/2015 14:42

lots of change coming.... and

"NG are in a prime position to benefit from it"

or just as logically

"suffer from it."

Everyone must make their own decision. For me the
admitted fact that NG are a government stooge in the
energy market is a major risk factor. In the long
history of investment there are many examples where
companies dependent on government place shareholder
interests last in their priorities. Other like PFI
contractors have government over a barrel and make
very high profits from their monopoly.

Which is NG?? From the fact that last week we had the
first near brown out across the whole of the UK with
the triggering of the emergency powers to cut off
supply to industry I suspect that supply and distribution
are in a far far bigger mess than anyone is admitting.
So for me NG is a very high risk share and the potential
rewards are too lacklustre to attract me.

Its my judgement - others can make their own.

[newbank] 11/11/2015 13:56

Kibes,

As Pierre says, NG are in a unique position regarding gearing. The framework within which National Grid operates is actively encouraged by the regulator. The regulator would rather Grid operate at a higher debt than normal businesses because, 1, Because NG's capital costs (agreed by OFGEM) can be recovered via the Customer and 2, The regulator would prefer National Grid to raise capital needed for Capex, in the short and medium term, via debt due to the Country's Economic situation.

Another reason why Debt is preferred by OFGEM and the Government, for highly critical essential services like Grid, is to discourage potential takeovers. In the early days a few years after it's float on the stock market in 1995, National Grid had a surplus of cash with very little debt. The Company were inundated by potential predators (Takeovers) who use the lack of debt and cash reserves against the Company they want to take over. This is a well known technique in aquitisions and mergers.

Like Pierre and Uty, I have an inside knowledge of how the Company works. It is quite unique to that of other 'run of the mill' Companies.

Lots of change in the Energy Industry for the next ten years and National Grid are in a prime position to benefit from it:)

[kibes] 11/11/2015 12:01

scotches - I agree and am quite uncomfortable about their debt and p/e rating. However, if they announce a huge sale price for the gas distribution stake the shares will go rocketing up. My finger will be on the sell button at that point.

[scotches] 11/11/2015 11:34

Most of the TMF articles are just quick buy or sell ramps to get their I guess circa £50 writing fee. A bull case one day and a bear one the next.

Is the debt and multiple particularly high? It seems a legitimate issue to discuss.

Despite most holders here for the divi there is a fluctuation of £1.50 over the last year on what you could have paid for the shares so having an assessment of what is the correct multiple is worth consideration.

It is not a copyright infringement to post a link - however advfn restrict links to rival finance sites.

I hold NG.

[pierre oreilly] 10/11/2015 23:55

mj, you could indicate that they aren't your words and indicate the source. In fact you, and advfn, are in breach of copyright by simply copying and pasting lots of text (even if you originally wrote it yourself if tmf own the copyright). Why not just supply a link to the article?

[m100] 10/11/2015 22:36

@pvb

a google search on a few lines of the text point towards the source, 'TMF' with big emphasis on the Fool. The postscript to the original text mentions the author does not have any holding so yet another spiv trying to talk the price down.

[pvb] 10/11/2015 22:20

Could just provide a link (if ADVFN permit it ;-) ), then we would also know the source.

[mj19] 10/11/2015 21:47

Guys I was only posting news articles

[big7ime] 10/11/2015 19:02

Fool indeed who wrote that. Now my largest blue chip. Was tempted to scale back but the bounty to come is just too good
He seems not to realise the huge property windfall over the next few years.
Mahoosive - onwards through a tenner here we come..

[getscenic] 10/11/2015 18:51

P O that was lifted from the Fool website, fool being the operative word!

[pierre oreilly] 10/11/2015 16:39

mj I get the feeling you dont know much about the quite unique financial position of ngc. most of what they do, including cash raising and infrastructure investment and returns from them are more or less ordered by the government for the majority of thier business.

[mj19] 10/11/2015 14:47

National Grid Plc: Why I'd Disregard Talk Of The Dividend & Dump Theng It is with 2015's lacklustre returns in mind that I provide an overview of today's financial results, before outlining why I would still prefer to avoid or walk away from National Grid (LSE: NG) shares.Earnings & divestmentThe headline in today's results was without doubt the proposed sale of a majority stake in the group's gas distribution network.Already the media is abuzz with reports of how the sale could fetch anything up to £11 billion, and how almost all of this would be returned to shareholders through special distributions.Now this could be a good thing for investors, given that the group's already generous annual dividend amounts to less than £2 billion, and it may actually happen. However, so far, the market seems un-enthused, with the shares up a meagre 2% by lunch time.The group also reported what it described as a 22% increase in first-half EPS, with much of this growth being predominantly the result of 'other activities', which is the term used to describe income from its inter-connectors business and from property activities.Operating profits from UK gas transmission also increased, along with those from regulated activities in the US.Balance sheet & valuationFrom a balance sheet perspective, the cold hard truth surrounding National Grid is that it remains hideously overleveraged and that this issue of stretched finances is only likely to continue as a theme in future years.First and foremost, rising interest rates will mean higher finance costs for the group, which may in turn prove to be a headwind to revenue and earnings growth that is already going to struggle to remain above the low single digits over the medium to longer term. Secondly, management have already told us that they intend to borrow an additional £2-3 billion every year for "the next few years" in order to finance investment, which amounts to a 10% per annum increase in long term liabilities.This wouldn't be a problem if it weren't for the fact that NG's gearing is already at 66%, while the value of its debt sits at twice that of shareholders equity, leaving debt/equity at 1.93x.The group currently trades on a forward multiple of just over 15x the consensus estimate for EPS in 2015, which implies a 15% discount to the sector average, but is in line with the average for the sector if water utilities are excluded.Where this multiple places on the value spectrum will depend entirely upon the individual's assessment of whether multiples averaging 15x -17x the consensus can ever be justified in an overleveraged, low-growth sector.The verdictIt is disconcerting to note that management intend to dispose of assets worth up to £11 billion and yet they still intend to borrow an additional £2-3 billion each year, which implies a 10% per annum increase in long-term liabilities for the foreseeable future.This feeds into to my own long held view that, eventually, something will have to give at National Grid.Only now it transpires that, with gains from asset disposals likely to be returned to shareholders, it will probably be the regular dividend that gives out over the medium term at NG.My guess is that management will not return "substantially all" of the proceeds from any sale as promised this morning.I believe that, before the finish line, sense will probably overcome them and they will elect to do a bit of everything instead -- which would include special dividends, paying down debt and setting aside provisions for future regular dividends.Either way, I suspect that the eventual outcome of this situation will probably lead to disappointment for at least some investors.If it were me, I wouldn't hang around to find out how this story ends as the shares appear to have peaked a long time ago, and if today's news (earnings growth + dividend & disposals) is not enough to change this, then it is difficult to imagine what would be.Whether or not you agree with me on the subject of National Grid, if you are growing wary of the risks surrounding some of the traditional pillars of support for your portfolio, then this free report will probably be of interest to you.It contains a number of detailed steps that you can take to enable your portfolio to perform better in future years.

[bountyhunter] 10/11/2015 11:21

header updated, rgds bh

[newbank] 10/11/2015 10:25

Croquetman,

Absolutely right,

Distribution is profitable but does incur a lot of operational costs. To capitalise on what certain interested parties are willing to pay may be a no-brainer to take advantage of. Bearing in mind, we still will have a stake on the future profits of the Dist Network.

Gas Transmission and in particular Electricity Transmission are going through great change with the potential to return significant benefits to both shareholders and customers.

As Steve Holliday stated in the presentation (still in progress), the potential return to shareholders of the part sale of the Dist network, will be concurrent with a share buyback to ensure that earnings per share is maintained if not enhanced....double benefit!

[pierre oreilly] 10/11/2015 10:17

kibes - the board are supposed to do the best for shareholders - in this case, it looks like they may take the view that current ratings for gas businesses are very high, so they can exit and return the cash to shareholders (so they can invest where they want).

Such a move wouldn't affect the remaining business eps/share price etc since thay are always ime structured to maintain those ratios - i.e. the number of shares in issue woulkd decrease in proportion with the cash distributed.

I must say, i like the thought on ngc simply concentrating on what their business originally was and where their expertise lies, and that is in electricity distribution. And releasing cash for me personally woukld be great because the price rises of ngc over the years has left me overweight in ngc, which i expect is the same for many long term holders.

Good to see an ex-graduate trainee taking the helm - internally trained and must know the bizz inside out.

[croquetman] 10/11/2015 09:34

I can only guess that there is no potential for volume growth in the gas business, but there is potential for growth in the electricity business - e.g. all the new sources of power needing connection to the grid, electric cars needing charging points. So maybe a way to fund growth at the expense of sort term profit. That might hit dividends and therefore share price in the short/medium term.

[lord gnome] 10/11/2015 09:11

My feelings exactly, kibes. I do accept, however, that SWFs and institutions like the Canadian Teachers' Pension Fund do seem to be paying very silly multiples for cash generative, index linked, profitable businesses. Perhaps the indicative offer is just too good to miss. I'll wait and see.

[kibes] 10/11/2015 09:01

Can anyone explain how it can possibly make sense to sell off a gas distribution stake? This is a good business which is doing well, so how do they intend to replace the profit it is currently generating? And without those profits how will it be able to maintain the current earnings per share? To sell a good busimness in order to buy something else, that is rarely a good strategy.

[cyfran101] 10/11/2015 08:47

They are planning to sell a majority stake not 100%

[mundungus] 10/11/2015 08:36

In the telegraph too.

[m100] 09/11/2015 11:21

National Grid mulls £10bn GDN sell-off, say reports

National Grid is said to be considering a £10 billion sell off of its gas distribution networks, according to weekend reports.

(Report was in the Sunday Times)