National Grid (NG.) drops as Labour plans to nationalise network

Overall the results were ahead of expectations, but this didn’t stop concerns over Labour’s announcement.

Article updated: 16 May 2019 1:00pm Author: Ian Forrest

  • Today National Grid announced a big drop in full-year profits and simultaneously, Labour announced its plans to take group into public ownership.
  • However the results were ahead of expectations and the dividend was raised by 3%.
  • We continue to recommend the share as a medium risk ‘buy’ for investors.

Power transmission group National Grid announced a big drop in full-year profits today but that news was overshadowed by an announcement from the Labour Party that it plans to nationalise the UK’s energy network if it gets elected. That comes as no great surprise given its previous comments on nationalising a range of other sectors such as train operating companies, water utilities and the Royal Mail. Labour provided little detail on how much it would cost and how much investors would be compensated for having their shares confiscated.

The party stated it would provide bonds in return for shares, but also said any compensation would be adjusted to take account of a number of factors including pension fund deficits, asset stripping since privatisation, stranded assets, the state of repair of assets and any state subsidies given to the energy companies since privatisation. That’s a long list and suggests any compensation may be quite small if it amounts to anything at all.

A number of one-off factors impacted National Grid’s results but the underlying figures, which strip those out, were ahead of expectations and the company raised its dividend by 3%. The next general election is not officially due until May 2022 but there is a reasonable chance it may happen before that and Brexit could split the right of centre vote and bring the Labour Party into power.

Our View on National Grid - Buy

The market reaction today was understandable with National Grid’s shares dropping 3% and a wider sell-off across the utilities sector. While National Grid’s prospective yield is a very decent 6%, and we still recommend the shares as a ‘buy’, we consider the risk associated with the shares as medium but may well rise in future.

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All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Ian Forrest portrait photo
Ian Forrest

Investment Research Analyst

Ian’s background in investments, financial journalism and research has seen him advising private investors on equities and helping to manage portfolios. His qualifications include the Certificate in Financial Planning and the Chartered Institute for Securities & Investment’s Investment Advice Diploma.