Share gains lower in next power sell-off

Stockbrokers believe that investors taking part in the sale of the remaining 40 per cent of PowerGen and National Power will not reap the same rewards as those in the original sale four years ago.

The public will be able to subscribe for up to 40 per cent of the £4bn sell-off, taking place within the next few months.

National Power and PowerGen are the biggest and third biggest suppliers of electricity in the country. In 1991, 60 per cent of the companies were sold off at175p per share. Since then the companies' share prices have rocketed to 488p and 535p respectively, representing a 178 per cent and a 204 per cent return on investment over four years. Both these returns are considerably higher than for an average unit or investment trust over the same period.

On the whole, stockbrokers are optimistic about the future for the generating companies. However, investors will not benefit from the big discounts given to those buying the shares the first time, and at least one stockbroker has concern about what mighthappen to the companies under a Labour government.

Phillip Epsley, a stockbroker with Albert E Sharp, said: "We are positive about the sell-off. The market will depend on the demand for electricity, which has been increasing by 3 per cent a year." He said this increase in demand was being fuelled by the UK's general economic recovery.

In order to increase competition between the generating companies, the Government has ordered that they sell off parts of their businesses to interested parties such as the regional electricity companies or the third major power supplier in the country, Nuclear Electric.

This has reduced the companies' combined share of the market from 75 to 60 per cent since privatisation. Over the same period, costs have been cut - employees, for example, have fallen from 8,300 to 3,900. Another 1,000 jobs are expected to go over the next three years.

Mr Epsley said that the power companies had been trying to diversify into non-core businesses to make up for their loss of market share. He believes that the companies' earnings will grow by 8 per cent a year for the next four years with dividends, curr e ntly 4 per cent, growing by 16 per cent a year.

Richard Twydell, head of marketing at stockbrokers Henderson Crosthwaite, said: "We are quite positive about the offer. But anyone deciding to buy the shares should be aware of the political situation. A Labour government is likely to tighten up regulation of the industry through its regulator, Offer."

Mr Twydell thinks this could involve price control.

He said: "All the utilities companies have been trying to diversify because of this.'' He added that of the two companies, he preferred National Power because it had diversified more successfully. Both brokers pointed out that the shares could be good for Pep investment because investors get their dividend without having to pay the full share price for three years. This boosts the yield on both to about 12 per cent for the first year.

Anyone wishing to subscribe to the offer must register with an official share shop. A booklet on choosing a shop is available from ProShare.

`Choosing a Share Shop', £1.95 inc p&p, is available from: Share Shops Booklet, PO Box 1, Hastings TN35 4SE, tel 0424 755755.