No one ever lost sleep investing in National Grid. This is one of the most reliable and highest dividend payers in the FTSE 100. Since February it has known exactly what its regulatory regime will look like until 2021, or, to put it another way, what targets it must exceed to outperform.
This and the switch to safer, income stocks has benefited the price, which is up 17 per cent since the start of the year.
National Grid is confident, or as confident as anyone can be, that it has bolted enough excess capacity on to the system to prevent the lights going out. The existing reserve, which represents 4 per cent more generating capacity than should be needed, would be sufficient in 19 years out of 20; assume an exceptionally cold year and there is another 2 per cent that can swing into action.
Its American operations slightly underperformed. These represent 14 regulated authorities in the northeast; while the company has to reach frequent agreements in each on how much it can charge, these tend to balance out in the end. The return on assets fell slightly, nothing that should worry investors.
The Grid described itself yesterday, in its halfway figures, as “well-funded”. This is a little like describing Primark as quite good at selling cheap clothes. The company has just agreed a £1.5 billion, inflation-linked bank facility, the biggest ever by the European Investment Bank, to fund investment in the UK’s electricity transmission system.
Operating profits were up 2 per cent to £1,611 million in the half-year to the end of September. The halfway dividend is up from 14.49p to 14.71p, in line with earlier forecasts. The final payment will be based on the rate of inflation next spring, when the company announces full-year figures. This is predictable enough; the total payment looks like coming out at about 43p, putting the shares, up 2p at 919p, on a forward yield of 4.7 per cent.
The investment going in should lift the value of the Grid’s assets by about 5 per cent providing some potential uplift for the share price. This is about as good as it gets in these markets. Buy.
Capital investment £1,579m
My advice Buy
Why Dividend yield is excellent and there is the prospect of captial growth
Rentokil Initial
In what might seem to its long-suffering investors as a minor miracle, Rentokil Initial is now about where it wants to be. At last. The disaster-plagued City Link business is nothing more than an awful memory.
The company is spread across 60 countries, in pest control, hygiene and office plants, the first two being the core of the original businesses. Debt is where it should be, at about £800 million after the sale of the facilities management business to Interserve, which can be supported by earnings of about £250 million a year. Cashflow is strong, running at about £80 million a year, and there is even a dividend.
Nothing is ever perfect. The shares fell 6p to 116p after analysts cut their forecasts for this year because of Rentokil’s exposure to the northern eurozone, almost half of profits. This was behind a slowing in revenue growth, disregarding currency movements, in the third quarter, to 4 per cent, from 8 per cent in the first half.
Allowing for currencies, the reported figure was down by 4.1 per cent, to £62.6 million. The main weakness was in France and the Benelux countries. The company cannot do much about this, but there are opportunities in growth markets such as Latin and North America and Asia.
The shares have traded in a narrow band this year. I suspect further progress will require a period of stability and consistent growth, and perhaps some better signals from the eurozone. Best avoided for now.
Revenue £440m
PBT £53.5m
My advice Avoid for now
Why It looks too early in the recovery programme to go back into the shares
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