Bottom Line: Last chance to plug into Northern Ireland

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The Independent Online
BIG institutions are unlikely to get much of a look-in on Northern Ireland Electricity, the last and smallest of the electricity companies to be privatised.

The flotation is heavily weighted towards the private investor who stands to land two-thirds of the pounds 360m offer-for-sale if demand proves to be high enough.

Security considerations inevitably mean that a risk premium attaches itself to NIE.

Against that, the distinctive structure and regulation of the company make it an extremely defensive investment.

NIE is a cross between the National Grid and a typical regional electricity company, earning 80 per cent of its profits from the transmission and distribution of electricity in Northern Ireland, where load growth is increasing at 3 per cent a year, much faster than in the rest of the United Kingdom.

Regulation is carried out by a cap, not on prices but on total revenues, which limits both the upside and downside on changes in sales growth. The incentive to market electricity may be weakened by this, but the drive to cut costs - and there looks plenty of room for that - is enhanced.

Longer term, NIE may feel the pinch from competitors such as British Gas.

However, the prospect is for a progressive rise in dividends and the partly paid structure - 100p now and 120p in June 1994 - implies a yield of 8 per cent, assuming a full-year dividend of 11p.

A pro forma yield of 5.8 per cent compares with an average of 5.2 per cent for the UK regional companies and should point to a 20p premium, other things being equal, when dealings start next Monday.

The fleet of foot still have time to get their applications at selected bank branches until 10am tomorrow.