Littlechild nerves dog Northern boosts pay-out

INVESTMENT COLUMN
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The Independent Online
The review by Stephen Littlechild, the electricity regulator, is hanging heavily over the regional electricity companies, and nowhere is this more apparant than at Northern Electric.

On the regulator's decision hangs the future of any renewed bid for the company by Trafalgar House, which withdrew its original pounds 1.2bn offer worth pounds 11 a share earlier this year after Professor Littlechild intervened.

Northern reiterated yesterday that it was ready to approve a renewed bid - necessary under takeover rules if within 12 months of an old one - but only once the regulatory uncertainty is removed. On that also depends whether shareholders are also offered the package of goodies, worth up to around 500p a share, on which Northern based its defence. The clear hint from the company is that any new clampdown could reduce or remove the possibility of a further package.

In the meantime, investors have very little with which to pin a valuation on Northern. Results yesterday for the year to March were in line with forecasts made in the defence document earlier this year.

Pre-tax profits came in 21 per cent ahead at pounds 156m, before allowing for the pounds 15.1m cost of the bid so far, against a target of pounds 150m. Earnings per share, up from 79.8p to 87.7p, were also as expected.

And as proof of its new-found sensitivity to shareholders, Northern has hoisted the dividend a third to 33p after a final payment of 23.4p. That is the most generous increase announced so far by the electricity companies, but its size was magnified by last year's pounds 102m share buy-back. Without that the rise would have been nearer a fifth.

Northern is keeping the screw tightened on costs, with pounds 20m provided in these figures for the 600 staff who left in the year and for another 400 set to go. Underlying costs in the main distribution business - owner of the wires - fell 5 per cent, but operating profits crept ahead 1.7 per cent to pounds 99.4m.

The main growth came from the electricity supply arm, which was boosted by the lifting or loosening of regulatory controls on smaller customers. Northern has been more aggressive than most in attacking the market outside its own franchise area and reckons to have picked up around 20 per cent of the 50,000 customers in the UK who decided to shop around last year. That helped profits to soar from pounds 5.8m to pounds 24.9m, although this growing dependence on supply exposes Northern to an increasingly competitive market.

The already tighter regulatory environment will cut overall profits this year, with NatWest Securities looking for pounds 137.7m before any provisions. That puts the shares, down 2p at 774p, on a forward multiple of below 8 and vulnerable to any sudden withdrawal of the bid hopes.

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