The Investment Column: National Grid retains its spark with US venture

WITH THE exception of the telecoms giants, most utilities businesses are rather dull companies which offer solid growth from their monopoly networks.

National Grid (NG) is getting away from that image. It says its main asset is not its electricity transmission monopoly in England and Wales, but its skills in growing fledgling network businesses.

The phenomenal growth of Energis, the telecoms company that NG helped build and in which it still holds a 48 per cent stake, justifies the claim. But the task for NG is to find the next Energis.

The company yesterday said its strategy is to grow subsidiary businesses for future sale. Although the usual method for making the value of a subsidiary transparent is the demerger, NG has chosen to sell down its Energis stake.

NG's detractors argue that selling rather than demerging deprives shareholders of a chance to participate in a still growing activity. But NG is taking the cash from Energis for strategic reasons. This year it raised pounds 713m from selling shares in Energis to help fund its pounds 2bn acquisition of New England Electric System (NEES).

The point of NEES is to apply NG's experience of the deregulated UK electricity market in the US. The roll-out of electricity competition in the US lags behind the UK. Electricity transmission companies are vital to the process because they ensure that the lowest-cost generators are fully connected to customers.

What the US regulators want, and what NG offers, is expertise in this area. The NEES deal should be the starting point for NG eventually becoming the dominant transmission player in the US.

Analysts estimate that NEES will add around pounds 360m initially to NG's pounds 582m operating profits from the core UK electricity transmission activities. It could take six months to receive regulatory approval for the deal, but completion is highly likely.

The potential of NG's other fledgling businesses is much harder to predict. These include electricity transmission ventures and telecoms partnerships in Norway, the Isle of Man, Brazil, Zambia, Australia and Argentina.

The rather piecemeal nature of this portfolio suggests deals like NEES are going to be rare. Even so, on forecasts of pounds 522m pre-tax profits and earnings of 26.3p per share, the shares are on a p/e of only 16. That relatively undervalues NG's possible upside in leveraging its UK transmission expertise in the US in the long-term. Buy.

u

EMI

SIR COLIN Southgate's retirement from EMI in July will follow a period of belated cost cutting and top level management reorganization. If that leaves the music producer and publisher in rude health for the future, it may not be enough to see the shares outperform the market.

Few investors will have forgotten the hype around EMI shares prior to its 1997 demerger from Thorn. Since then, they have underperformed the media sector by 40 per cent as a takeover failed to materialise when Seagram's MCA Music arm opted to buy Polygram instead. EMI stock slid to an all- time low of 312p in October. Since then a decent recovery has ensued, although the shares fell 12.5p yesterday to 447p as EMI reported full- year results.

EMI's attractions are its 20 per cent discount to the media sector's historic p/e of 30. It also trades at a fractional discount to the market - this despite the music industry's expected long-term growth potential and EMI's rarity value as the only independent among the big five music groups.

Analysts expect EMI to provide 10 per cent earnings growth through 2001. A discovery like the Spice Girls would boost profit substantially. "Girl Power"can't be reliably factored into earnings forecasts, however.

With new directors installed in many of EMI's main markets and the experienced Ken Barry and Martin Bandier heading up recorded music and music publishing respectively, incoming chairman Eric Nicoli has a fresh executive team to drive the company forward.

But management can have only so much impact in an industry fundamentally based on creativity. Sceptical investors may wish to exploit the recent rally and take some profits.

u

Morrison

MORRISON GROUP is a construction company which even constructs its own business. It has established a leading position in the market for private finance initiative (PFI) contracts. This enables it to instigate 80 per cent of its sales.

Morrison's strength in PFI is based on a first-mover advantage. Securing PFI contracts requires in-house expertise to handle the bureaucracy and an army of advisers to get the finances right.

Morrison invested in these capabilities early on. Now it is cementing its reputation as a company that makes PFI a success.

The value of Morrison's reputation was proved yesterday by its reported 15 per cent hike in pre-tax profits to pounds 24.1m and a 17 per cent rise in earnings per share to 24p.

The group is broadly based around three divisions - property, infrastructure and facilities management - and has a diverse portfolio of business within each. It was able to offset declining revenue from roadworks with income from water deals and motor-racing circuit management.

Morrison is sustaining its earnings growth. Current orders, at pounds 450m, are already double those at this time last year. It will be raising its headcount to ensure smooth delivery of this organic growth.

Meanwhile, it is seeking acquisitions to strengthen the facilities management division, which is benefiting from the continuing outsourcing trend. With gearing at 55 per cent, the group's investment plans have firm foundations.

Despite the acquisition plans, Morrison is a cautious company; provisions against Russian disappointments dented profits slightly. Growth will not be spectacular.

However, on Sutherlands' forecast pre-tax profits of pounds 26.2m and earnings of 29p per share for 2000, the shares are on a forward p/e of just 10. At 285p they look good value.

Suggested Topics
PROMOTED VIDEO
News
A 1930 image of the Karl Albrecht Spiritousen and Lebensmittel shop, Essen. The shop was opened by Karl and Theo Albrecht’s mother; the brothers later founded Aldi
people
News
Lane Del Rey performing on the Pyramid Stage at Glastonbury 2014
people... but none of them helped me get a record deal, insists Lana Del Rey
Life and Style
fashion Designs are part of feminist art project by a British student
Arts and Entertainment
Dwayne 'The Rock' Johnson stars in Hercules
filmReview: The Rock is a muscular Davy Crockett in this preposterous film, says Geoffrey Macnab
News
i100
Arts and Entertainment
British author Howard Jacobson has been long-listed for the Man Booker Prize
books
Life and Style
tech
Arts and Entertainment
Standing the test of time: Michael J Fox and Christopher Lloyd in 'Back to the Future'
filmA cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Sport
Louis van Gaal watches over Nani
transfers
Arts and Entertainment
Flora Spencer-Longhurst as Lavinia, William Houston as Titus Andronicus and Dyfan Dwyfor as Lucius
theatreThe Shakespeare play that proved too much for more than 100 people
News
exclusivePunk icon Viv Albertine on Sid Vicious, complacent white men, and why free love led to rape
Sport
New Real Madrid signing James Rodríguez with club president Florentino Perez
transfersColombian World Cup star completes £63m move to Spain
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
Stir crazy: Noel Fielding in 'Luxury Comedy 2: Tales from Painted Hawaii'
comedyAs ‘Luxury Comedy’ returns, Noel Fielding on why mainstream success scares him and what the future holds for 'The Boosh'
Life and Style
Flow chart: Karl Landsteiner discovered blood types in 1900, yet scientists have still not come up with an explanation for their existence
lifeAll of us have one. Yet even now, it’s a matter of debate what they’re for
Arts and Entertainment
'Weird Al' Yankovic, or Alfred Matthew, at the 2014 Los Angeles Film Festival Screening of
musicHis latest video is an ode to good grammar. But what do our experts think he’s missed out?
Travel
Hotel Tour d’Auvergne in Paris launches pay-what-you-want
travelIt seems fraught with financial risk, but the policy has its benefits
Arts and Entertainment
booksThe best children's books for this summer
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Insight Analyst – Permanent – Up to £40k – North London

£35000 - £40000 Per Annum plus 23 days holiday and pension scheme: Clearwater ...

Test Lead - London - Investment Banking

£475 - £525 per day: Orgtel: Test Lead, London, Investment Banking, Technical ...

Business Analyst - Banking - Scotland - £380-£480

£380 - £480 per day: Orgtel: Business Analyst - Banking - Edinburgh - £380 - ...

Risk Analyst - (Multi Asset class) £70k - £80k

£70000 - £80000 per annum: Harrington Starr: My client is a leading financial ...

Day In a Page

Noel Fielding's 'Luxury Comedy': A land of the outright bizarre

Noel Fielding's 'Luxury Comedy'

A land of the outright bizarre
What are the worst 'Word Crimes'?

What are the worst 'Word Crimes'?

‘Weird Al’ Yankovic's latest video is an ode to good grammar. But what do The Independent’s experts think he’s missed out?
Can Secret Cinema sell 80,000 'Back to the Future' tickets?

The worst kept secret in cinema

A cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Facebook: The new hatched, matched and dispatched

The new hatched, matched and dispatched

Family events used to be marked in the personal columns. But now Facebook has usurped the ‘Births, Deaths and Marriages’ announcements
Why do we have blood types?

Are you my type?

All of us have one but probably never wondered why. Yet even now, a century after blood types were discovered, it’s a matter of debate what they’re for
Honesty box hotels: You decide how much you pay

Honesty box hotels

Five hotels in Paris now allow guests to pay only what they think their stay was worth. It seems fraught with financial risk, but the honesty policy has its benefit
Commonwealth Games 2014: Why weight of pressure rests easy on Michael Jamieson’s shoulders

Michael Jamieson: Why weight of pressure rests easy on his shoulders

The Scottish swimmer is ready for ‘the biggest race of my life’ at the Commonwealth Games
Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

The 'scroungers’ fight back

The welfare claimants battling to alter stereotypes
Amazing video shows Nasa 'flame extinguishment experiment' in action

Fireballs in space

Amazing video shows Nasa's 'flame extinguishment experiment' in action
A Bible for billionaires

A Bible for billionaires

Find out why America's richest men are reading John Brookes
Paranoid parenting is on the rise - and our children are suffering because of it

Paranoid parenting is on the rise

And our children are suffering because of it
For sale: Island where the Magna Carta was sealed

Magna Carta Island goes on sale

Yours for a cool £4m
Phone hacking scandal special report: The slide into crime at the 'News of the World'

The hacker's tale: the slide into crime at the 'News of the World'

Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
We flinch, but there are degrees of paedophilia

We flinch, but there are degrees of paedophilia

Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
The truth about conspiracy theories is that some require considering

The truth about conspiracy theories is that some require considering

For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn