View from City Road: Hollow moans from National Power

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National Power, the larger of the two English privatised electricity generators, was at it again yesterday, warning of hard times. Higher nuclear output, a wave of new gas- fired power stations owned by independent operators and a flood of imported electricity from the interconnector with Scotland would cut its market share, already down 2.5 per cent to 41.1 per cent, to the low 30s in the not-too-distant future.

As usual the stock market ignored the company's moving tales of poverty and marked the generator's share price 11p higher to 346p. Investors know that National Power must feel as threatened in its home market as Riddick ' Big Daddy' Bowe in a school playground. Last year the company's pre-tax profits rose by 13 per cent to pounds 580m and its dividend went up by a handsome 16 per cent.

Profits would have gone up by more than a third, despite an 8 per cent drop in sales, if National Power had not provided another pounds 113m for yet more plant closures and job cuts.

These closures, which are running at a rate undreamt of at privatisation two years ago, will ensure that National Power has ultra-efficient power stations to meet any competition.

Not only that. Further slimming will have little bottom-line impact on National Power's earnings stream thanks to a fat pounds 552m store of provision in the balance sheet of which pounds 267m is set aside for rationalisaton and restructuring.

Running its own rail freight could save pounds 85m. Dividend-paying power is meanwhile bolstered by indications that dividend cover could be cut from 3.1 times to 2.5 while pounds 700m of cash could be released from excess coal stocks.

No wonder that National Power shares are yielding 3.8 per cent, below the market average, given the prospect of dividend growth well into double figures for the next few years.

The real uncertainty lies overseas. Opportunities are enormous, with half the world's population unwired to electricity, but so are the risks. National Power's pounds 1bn investment plans could lift debt to over 50 per cent of its equity base and dilute its image as a safe haven. Recovery stocks may offer better returns from now on.