Lots of momentum with National Grid in the last week as the company released its preliminary results for the year ending 31 March 2011. Nice to see new 52 week highs on Friday as the shares topped out at 635p intra day.
Written under the banner of Solid performance:
- Revenues of £14.343bn (2010: £14.007bn)
- Revenues of £14.343bn (2010: £14.007bn)
- pre tax profits were up 25% (earnings per share are only up 4% as a result of adjustment to the previous year to reflect the rights issue and the issue of scrip dividends).
- returns from the US up to 8.2% (+130 basis points).
- Operating cashflow up by 12% to £4.7bn
- Cashflow per share of 138.36p well in excess of earnings per share of 711
- Cashflow per share of 138.36p well in excess of earnings per share of 711
- a record capital investment of £3.6bn
- net debt now stands at £18.7bn (2010 £22.1bn) following the £3.2bn rights issue. Interest cover has fallen slightly to 3.8 times but is still comfortably higher than the stated target range of 3 - 3.5 times
- a dividend increase of 8% to 36.27p per share for the full year
- dividend cover of 1.95 times
- dividend cover of 1.95 times
The company did point out that part of the boost in profits was contributed to by the timing of payments which carried over into the last financial year from previous years which might help to explain profits being ahead of expectations despite revenues being below expectations.
Good to see that the £3.2bn rights issues has reduced net debt and financing costs as per its objective. I would normally like to see more cash on the books but this is a company in a regulated industry so is more dependent upon cash-flows than companies in other industries and it is this surety of cash-flow that enables "utilities" to take on borrowings to hopefully re-invest at a better margin.
That regulated element (RPI + X regulatory allowance) is predicted to add £180m to UK revenues in the coming year (UK regulated being 58% of total revenues).
Unfortunately, US revenues are not index linked.
And, as a result, the US, with its state by state politics has proven to be much more difficult for National Grid to work with and returns remain below what the company can achieve in the UK.
Consequently, the company recognises that it must now focus on efficiency savings to increase US returns and continues to take steps towards this with $200m achieved ahead of plan and a further $200m targeted for this financial year through management and administrative reductions.
The preliminary results seem to underline a commitment to the US operations but a segment in this weeks Mail on Sunday suggests that the company is considering the sale of its Niagara Mohawk Power subsidiary (serving New York) for £1bn (see article: www.thisismoney.co.uk: National Grid eyes £1bn US sale).
Niagara Mohawk forms approx. 25% of the company's US portfolio.
For some time now, the company's struggle to make suitable returns from its US investments have been a concern for shareholders. As a result, there are those who have previously suggested that the company divest itself of its US operations rather than pour excessive amounts of time, energy and investment into them with the risk that it might not achieve the desired result.
In turn the proceeds could be used to reduce the company's debt
Looking forward the company is looking to maintain its strategy and expressed a positive outlook for the year although comparatives might be affected by the timing differences that boosted this last financial year.
For the Virtual Portfolio, National Grid is a big player. At 18.6%, it is the second largest holding in the portfolio (April 2011: Portfolio Update), and has delivered a capital gain of 16.54% and a further gain of 7.9% in dividends.
24.44% in total.
I also see them as a significant element of the Value and Income side of the portfolio for the next few years, with a forecast dividend yield still in excess of 6% at the current share price.
The shares are also due to go ex dividend on the 1st June, with actual payment on the 17 Aug.
At 23.47p for the final dividend this is a further 4.3% of gains although this will initially come off the share price on the morning of the 1st June.
In turn the proceeds could be used to reduce the company's debt
Looking forward the company is looking to maintain its strategy and expressed a positive outlook for the year although comparatives might be affected by the timing differences that boosted this last financial year.
For the Virtual Portfolio, National Grid is a big player. At 18.6%, it is the second largest holding in the portfolio (April 2011: Portfolio Update), and has delivered a capital gain of 16.54% and a further gain of 7.9% in dividends.
24.44% in total.
I also see them as a significant element of the Value and Income side of the portfolio for the next few years, with a forecast dividend yield still in excess of 6% at the current share price.
The shares are also due to go ex dividend on the 1st June, with actual payment on the 17 Aug.
At 23.47p for the final dividend this is a further 4.3% of gains although this will initially come off the share price on the morning of the 1st June.
National Grid @ 632.5p
Final dividend of 23.47p payable on the 17th August (Ex dividend 1st June)
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