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Shares in National Grid sparked a recovery this week, with a 1 per cent boost after better than expected half year results. The UK’s power transmission operator reported a pre-tax profit for the half year to the end of September of £785m, which was an improvement on expectations.
First half underlying operating profits for the group have actually fallen 1 per cent, at constant currency, to £1.3 bn but according to Chief Executive, John Pettigrew, the firm remains on track to deliver between five and seven per cent growth over the near term. So, can investors power up their portfolio with shares in the group or should they consider switching off?
National Grid has been beset by problems this year – in August more than a million customers, including a hospital and Newcastle Airport, were left without power after a major blackout. Times were equally turbulent at the other side of the Atlantic where National Grid faces a regulatory probe due to claims from New York and Long Island governor, Andrew Cuomo, that it failed to provide an adequate and reliable service. National Grid is unperturbed by both issues though – it is said to be liaising with the regulator over the UK blackout and says it believes it operated within the terms of its license, and it remains confident that it can address the US issues.
The group has also set new emissions targets, hoping to be 100% net emissions free by 2025, up from 80% previously, and it says it is still on track to achieve £50m of operational savings this year.
Some investors are likely to exercise caution with this stock however as a General Election looms. Although the Conservative party appears to be edging the polls at the moment, that could change at the drop of a hat, putting National Grid at risk of nationalisation and potentially setting it up for a turbulent few weeks.
Analysts have a positive outlook on the stock though, Morgan Stanley and Barclays both reissued their overweight ratings for the power operator. Overall at least ten analysts have issued a buy rating for the stock, with three or four sticking with hold so it appears Pettigrew’s confidence about growth prospects is convincing.
Challenges will still need to be overcome – Cuomo is threatening to revoke the group’s franchise license in New York, which would not be entirely inconsequential. Those businesses make up 12 per cent of the overall asset base with a combined regulated rate base of £4.6 bn. National Grid says it is confident it can address Cuomo’s issues however, and the group has announced an interim dividend of 16.57p per share, up 3 per cent on last year.
The consensus among analysts is that the future looks bright for National Grid, but much will depend on its ability to address current regulatory concerns on both sides of the Atlantic, and the final resolution of the General Election and Brexit.
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