Overall the results were ahead of expectations, but this didn’t stop concerns over Labour’s announcement.
National Grid (NG.) drops as Labour plans to nationalise network
- 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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