Investment Column: Buy your own piece of the National Grid

Unite Group; Huntsworth
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The Independent Online

Our view: Buy

Share price: 645.5p (+5.5p)

National Grid prides itself on a highly risk-averse business model, and yesterday's half-year results go some way to vindicating the strategy.

The group's underlying pre-tax profits are up by 16 per cent to £649m, despite recession-hit revenues pulled down by £28m to £6bn as demand for both electricity and gas plummeted on both sides of the Atlantic.

The company is already well-insulated from the vagaries of economic turbulence by the fact that 95 per cent of its assets – both here and in the US – earn regulated returns. It has also felt the continued effects of last year's high inflation, which ups the amount it can charge, and been boosted by the impact of this year's unprecedented low interest rates on its £22bn debt.

But the investment programme is the key, according to Steve Holliday, the chief executive. National Grid has invested £1.5bn so far, out of a £3.4bn plan, but has still managed to shrink its net debt by £700m. The group is also remarkably well-funded, with £2.5bn secured for this year and £1.3bn already in place for next. "The business is strong, the profits are growing, and we are financing the investments we are making that are growing, and will continue to grow, the business," Mr Holliday said.

And there is plenty more to come. The integration of the $12bn purchase of KeySpan in 2007 is not yet complete but is on track for $200m-worth of annual savings by 2011. It is also shielded from any regulatory risk until 2012 in the UK and has either filed or is putting in place new rate plans for 60 per cent of its US assets.

The yield on the stock is also an attractive 6 per cent. The dividend went up by 8 per cent in the first half, in line with the group's committed growth rate out to 2012. Exciting? No. Boring? Maybe. Buy? Definitely.

Unite Group

Our view: Buy

Share price: 299.75p (-0.25p)

Things are looking for up for Unite, the student housing specialist, which issued an update yesterday.

Rents between July and 18 November grew by 9.7 per cent on a like-for-like basis, as the UK student population continues to grow. This compares to a decline of around 10 per cent in average UK commercial property rents in the year to the end of September, according to data from the Investment Property Databank.

Reservations across the company's 38,500 bed spaces stood at 96.5 per cent, compared to 99 per cent in the last academic year, but this was mostly down to the opening of around 1, 400 new beds in London, a 37 per cent increase in the number of beds under management in the city within a single year.

Elsewhere, the attractiveness of the company's offering was evident in the sale of Unite House, a 395-bed property in Bristol, which was recently snapped up by the M&G Secured Property Income Fund for £21.5m, a 4 per cent premium to its valuation at the end of June.

Improving market conditions are only part of the story.

Having completed a fundraising in October, and in light of the £194m Oasis Capital Bank joint venture, which reduced debt and released £21m in cash, Unite is strong, and set to capitalise on the recovery. The valuation metrics also look good, with Cazenove forecasting 326p in net asset values for 2010, compared to an estimated 290p for the current year.

We say buy.

Huntsworth

Our view: Hold

Share price: 65.25p (+0.75p)

To those on the receiving end of calls from their consultants it's a constant source of amazement that PR companies do as well as they do.

Be that as it may, could Huntsworth be ready for a rise? The company's operations extend through financial PR, lobbying, general public relations, and various healthcare consultancy operations. Yesterday's interim management statement suggested that after some lean times when the budgets for these sort of things were being trimmed across the board, things might be looking up.

It's hardly boom time, but there have been tentative signs of activity in the capital markets, helped by the recovery in equity prices over the past few months. It's deal activity that generates the real fees and if M&A, flotations and the like show a sustained revival it would be a shot in the arm for the stock. But even without that, some 96 per cent of 2009 revenues are now committed, and the company says it should meet expectations for the year. However, the shares have been on the slide since the middle of September and now trade on about 8 times this year's forecast earnings, with a prospective yield of 4.4 per cent. Given the risks, that's probably about where they should be. So hold.

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