The Lemon Fool

I think that’s a valid strategy too.
A lot of the political risk should now be baked into the Utes SPs.

It's always worth remembering that the Labour Party's position on this is contradictory.

Article 17 of the EU Charter of Fundamental Rights states

"Everyone has the right to own, use, dispose of and bequeath his or her lawfully acquired possessions. No one may be deprived of his or her possessions, except in the public interest and in the cases and under the conditions provided for by law, subject to fair compensation being paid in good time for their loss. The use of property may be regulated by law in so far as is necessary for the general interest."

If Labour supports the EU, then it supports Article 17 which specifically states that fair compensation has to be paid - aka the market price. Labour needs Brexit to happen properly before it can use parliament to confiscate. If it tries while in the EU, then any EU entity holding shares can simply go to court and likely have the act of parliament overturned.

Labour can't support the EU and support confiscation. It's one or the other.

The appropriate mechanism for Labour is for them to issue Gilts to the par value of National Grid and do an asset swap. Or issue Sterling to the same value, which is the same thing but involves understanding what currency is. McDonnell has shown no interest in doing that up to now.

NeilW wrote:It's always worth remembering that the Labour Party's position on this is contradictory.

Article 17 of the EU Charter of Fundamental Rights states

"Everyone has the right to own, use, dispose of and bequeath his or her lawfully acquired possessions. No one may be deprived of his or her possessions, except in the public interest and in the cases and under the conditions provided for by law, subject to fair compensation being paid in good time for their loss. The use of property may be regulated by law in so far as is necessary for the general interest."

If Labour supports the EU, then it supports Article 17 which specifically states that fair compensation has to be paid - aka the market price. Labour needs Brexit to happen properly before it can use parliament to confiscate. If it tries while in the EU, then any EU entity holding shares can simply go to court and likely have the act of parliament overturned.

Labour can't support the EU and support confiscation. It's one or the other.

The appropriate mechanism for Labour is for them to issue Gilts to the par value of National Grid and do an asset swap. Or issue Sterling to the same value, which is the same thing but involves understanding what currency is. McDonnell has shown no interest in doing that up to now.

I'm not convinced Labour support the EU - Corbyn certainly doesn't, except where it is to his advantage. He's a leaver, not a remainer and hasn't lifted a finder to help remain so far either in the ref campaign or since.

A government can always find a way round these little problems - but they will have an uphill battle in the courts worldwide, so may well shrink away from it or run out of time. In my previous post, that's one of the practicalities I was thinking of. Even if the EU charter doesn't kick in, there is plenty of international precedent on how to behave on nationalisation and the legal battles could go on for years.

As for an earlier comment that the event is baked into the price: I doubt it. We will receive a cut down offer at a pittance yield - each of us has to ask: do we want the hassle?

I'm still pickering over what to do, but in any case I'm not doing anything immediately.

Arb.

Arborbridge wrote:
As for an earlier comment that the event is baked into the price: I doubt it. We will receive a cut down offer at a pittance yield - each of us has to ask: do we want the hassle?

With National Grid being a Company with interests overseas, is it a more likely scenario that a Nationalising government would just demand the UK assets? So National Grid has a Company would continue to exist and it would be given the compensation for confiscation of its UK assets rather than shareholders. That would require a UK Government to borrow or perhaps just print the compensation. Whether the assets would be confiscated at market value and what the residual National Grid would do with the proceeds would be some of the questions to be resolved.

Alaric wrote:

Arborbridge wrote:
As for an earlier comment that the event is baked into the price: I doubt it. We will receive a cut down offer at a pittance yield - each of us has to ask: do we want the hassle?

With National Grid being a Company with interests overseas, is it a more likely scenario that a Nationalising government would just demand the UK assets? So National Grid has a Company would continue to exist and it would be given the compensation for confiscation of its UK assets rather than shareholders. That would require a UK Government to borrow or perhaps just print the compensation. Whether the assets would be confiscated at market value and what the residual National Grid would do with the proceeds would be some of the questions to be resolved.

Yes, National Grid seems the biggest conundrum to me. For a future government that wanted to nationalise utilities the distribution network seems key so that puts NG pretty much first in line but then, as you say, it has those international interests that would seem to make it one of the more complicated re-nationalisation targets.

And also yes, there is huge uncertainty in my mind about whether this could be done at below-market prices. Maybe I'm being naive but I find it hard to imagine that this could be done at below market value without huge and lengthy legal challenges. Then again, if it is done at market value the markets seem to be doing a reasonable job on behalf on any prospective utility-nationalising government of driving down the price over the last few days.

NG is actually bottom of my list of utilities to sell. I'm going to dump Centrica (CNA) entirely next week. (I'm not trying to second guess the markets by anticipating any recovery bounce in the next couple of days, I just prefer to get onto this with a few other things cleared off my desk a a clear mind first thing on Monday morning.) I will also mull over my SSE options this weekend and very possibly dump all of that too which is about 4 times the size of my CNA holding (I was quite glad to see that my original CNA holding wasn't that big, just a toe in the poisoned waters there). That would then leave me with another little-and-large pairing, a small toe-in-the-water holding of Pennon and a bigger chunk of National Grid. Oh, and there's a reasonably big holding in United Utilities as well. I haven't decided at all what to do with those last three yet.

- Julian

Alaric wrote: That would require a UK Government to borrow or perhaps just print the compensation.

That's precisely the same process, just with different arms of government. Either HM Treasury issues liabilities (Gilts) and does an asset swap for the National Grid shares/assets, or the Bank of England (which is owned by HM Treasury) issues liabilities (Sterling) and does an asset swap for National Grid shares/assets.

It's just QE in a different form. Nothing more than an asset swap. One lower yielding entity for a higher yielding one. Which is the problem as far as this board is concerned.

Parliament will go for market value precisely to avoid any issues in courts. They want the Grid, and it is no skin off anybody's nose just to issue par for it.

Julian wrote:

Alaric wrote:

Arborbridge wrote:
As for an earlier comment that the event is baked into the price: I doubt it. We will receive a cut down offer at a pittance yield - each of us has to ask: do we want the hassle?

With National Grid being a Company with interests overseas, is it a more likely scenario that a Nationalising government would just demand the UK assets? So National Grid has a Company would continue to exist and it would be given the compensation for confiscation of its UK assets rather than shareholders. That would require a UK Government to borrow or perhaps just print the compensation. Whether the assets would be confiscated at market value and what the residual National Grid would do with the proceeds would be some of the questions to be resolved.

Yes, National Grid seems the biggest conundrum to me. For a future government that wanted to nationalise utilities the distribution network seems key so that puts NG pretty much first in line but then, as you say, it has those international interests that would seem to make it one of the more complicated re-nationalisation targets.

And also yes, there is huge uncertainty in my mind about whether this could be done at below-market prices. Maybe I'm being naive but I find it hard to imagine that this could be done at below market value without huge and lengthy legal challenges. Then again, if it is done at market value the markets seem to be doing a reasonable job on behalf on any prospective utility-nationalising government of driving down the price over the last few days.

NG is actually bottom of my list of utilities to sell. I'm going to dump Centrica (CNA) entirely next week. (I'm not trying to second guess the markets by anticipating any recovery bounce in the next couple of days, I just prefer to get onto this with a few other things cleared off my desk a a clear mind first thing on Monday morning.) I will also mull over my SSE options this weekend and very possibly dump all of that too which is about 4 times the size of my CNA holding (I was quite glad to see that my original CNA holding wasn't that big, just a toe in the poisoned waters there). That would then leave me with another little-and-large pairing, a small toe-in-the-water holding of Pennon and a bigger chunk of National Grid. Oh, and there's a reasonably big holding in United Utilities as well. I haven't decided at all what to do with those last three yet.

- Julian

As regards SSE versus CNA, I think I correct in saying that it is SSE which has the rather dodgier looking cash flow. I make it only 0.35 cover in the past five years, whereas CNA is 1.3 times.
I'm happy to have those figures challeneged or confirmed, but on that basis, SSE in a business sense should be in the firing line for me.

Arb.

Arborbridge wrote:As regards SSE versus CNA, I think I correct in saying that it is SSE which has the rather dodgier looking cash flow. I make it only 0.35 cover in the past five years, whereas CNA is 1.3 times.
I'm happy to have those figures challeneged or confirmed, but on that basis, SSE in a business sense should be in the firing line for me.

Arb.

Very interesting. Many thanks Arb. It is odd though that, if one views the current yield numbers as an indicator of the strength of the beating that the markets are giving each share, it is CNA at a 12.50% yield that is getting the appreciably bigger beating than SSE at 8.52%. (For my convenience I took those figures straight from my "project dump utilities" spreadsheet where I hand-calculated them mid last week so they are not based on Friday closing prices but I suspect are close enough to current yields to make the point anyway.)

I'm perfectly happy to dump both CNA & SSE on Monday. I actually need to be a bit careful at the moment to stop myself getting carried away and going sell-off crazy right now because I've been through and am still going through (I have about 20 pages of A4 scribbled thoughts, ideas and calculations on my desk as I type) some pretty significant adjustments to my mindset right now as far as managing my investments and my day-to-day finances are concerned so I must be careful not to do too much in haste while my ideas are still forming.

I really can't think that I'm going to regret getting out of either CNA or SSE next week though, SSE because of cash flow cover and CNA because the market seems to be throwing up a red flag too big for at least me to ignore - plus my CNA holding is relatively modest anyway so that's not really a massive action in my HYP. The total loss of income from selling CNA and not even re-investing the proceeds will be pretty much identical to the loss of (forecast) income from last week's VOD cut vs had VOD held divi levels constant.

The others utilities (NG, PNN, UU) maybe I'll hold off for a bit as I ponder further and look more deeply at their finances.

- Julian

Julian wrote:
I'm perfectly happy to dump both CNA & SSE on Monday. I actually need to be a bit careful at the moment to stop myself getting carried away and going sell-off crazy right now because I've been through and am still going through (I have about 20 pages of A4 scribbled thoughts, ideas and calculations on my desk as I type) some pretty significant adjustments to my mindset right now as far as managing my investments and my day-to-day finances are concerned so I must be careful not to do too much in haste while my ideas are still forming.



- Julian

That's the danger: that we both go dump-crazy! It's easy to talk oneself into that train of thought - and I admit I'm more than half way there already.

By an odd coincidence our trajectory was reinforced today by the Times article "Beware the dividend trap of shares that promise too much" . Featured, were VOD, CNA, SSE, Hammerson, BT, Tui.

CNA: "The market expects a dividend cut of 20%" and even then the dividend would not be covered. Where do they get "the market expects" from?

And before anyone suggests we shouldn't be taking any notice of scribblers in newspapers, you read our independent thoughts here first! - and are we not scribblers too?

Some retreat from the shares we are discussing seems a wise option, but not very HYP in thought. We are being drawn to the dark side

Arb.

Arborbridge wrote:CNA: "The market expects a dividend cut of 20%" and even then the dividend would not be covered. Where do they get "the market expects" from?

It's yield is 2.9x CTY at close. Eek.

Some retreat from the shares we are discussing seems a wise option, but not very HYP in thought. We are being drawn to the dark side

Be greedy when others are... etc. etc.

moorfield wrote:

Arborbridge wrote:CNA: "The market expects a dividend cut of 20%" and even then the dividend would not be covered. Where do they get "the market expects" from?

It's yield is 2.9x CTY at close. Eek.

Reminds me of the yields on the ill-fated income shares of split capital investment trusts around the year 2000 or so.

They were sometimes called "annuity shares" for a reason

The Times article reflects much the same thoughts in the current IC. Glad to say I do not hold any of them, nor would I at the moment. I have just taken a look at the shares I do hold though and I must say if it were any other share I would not be holding Imperial Brands at a yield of around 8.6%.
As it is I might just buy a few more.

I will continue to hold National Grid but it is my only utility.

Dod

Dod101 wrote:
I will continue to hold National Grid but it is my only utility.

Dod

I intend buying more NG. next Thursday. The Corbyn threat may or may not happen, and I’m all for buying when others are fearful, as hinted at by someone further up this thread.

Ian.

Arborbridge wrote:CNA: "The market expects a dividend cut of 20%" and even then the dividend would not be covered. Where do they get "the market expects" from?

Arb,

If that's a serious question, the answer is consensus dividend forecasts. Like this from the FT site just now:

In 2018, Centrica PLC reported a dividend of 0.12 GBP, equaling last years dividend. The 15 analysts covering the company expect dividends of 0.09 GBP for the upcoming fiscal year, a decrease of 24.17%.

MDW1954

MDW1954 wrote:

Arborbridge wrote:CNA: "The market expects a dividend cut of 20%" and even then the dividend would not be covered. Where do they get "the market expects" from?

Arb,

If that's a serious question, the answer is consensus dividend forecasts. Like this from the FT site just now:

In 2018, Centrica PLC reported a dividend of 0.12 GBP, equaling last years dividend. The 15 analysts covering the company expect dividends of 0.09 GBP for the upcoming fiscal year, a decrease of 24.17%.

MDW1954

I expect that's the answer, although the Sharecast censensus is a rather smaller fall to 10.5p. I was just amused about how they know what the "the market" thinks, as though that equates with "analysts think".

In normal times, I would not be worried about sticking to the HYP principle with such a forecast, but in the circumstance where one is trying to cut the political risk, it does put a cross on CNA's forehead.

Arb.

moorfield wrote:Be greedy when others are... etc. etc.

That's assuming you look before you leap, of course


Arb.

I dumped my NG last month. Proceeds are now safely offshore in SE Asia. There is no way Marxists are going to rob me of a penny while I draw breath.

JoyofBrex8889 wrote:I dumped my NG last month. Proceeds are now safely offshore in SE Asia. There is no way Marxists are going to rob me of a penny while I draw breath.

It makes no difference to me whether it's imaginary red under the bed or self-engrandising, greedy or hubristic directors wrecking a company. Both are equally objectionable, though the latter are a real and tangible danger, the former just a possibility.

Arb.

Arborbridge wrote:

JoyofBrex8889 wrote:I dumped my NG last month. Proceeds are now safely offshore in SE Asia. There is no way Marxists are going to rob me of a penny while I draw breath.

It makes no difference to me whether it's imaginary red under the bed or self-engrandising, greedy or hubristic directors wrecking a company. Both are equally objectionable, though the latter are a real and tangible danger, the former just a possibility.

A low probability risk is still significant if the outcome of that event happening is extremely harmful to you.

An incomptent or greedy bunch of directors may harm the value of your investment in that one company (and I am not saying NG is an example). A confiscatory anti-capitalist left-wing government could wreak havoc upon your entire portfolio, especially a UK-based one like HYP. Rich old white people are not a sympathetic demographic to those who seek to redistribute wealth. They are the target.

Political risk and single-country risk are things that I think are not fully weighted by HYP investors, perhaps because it is 40 years since we have had a government who sees private wealth as suspect. But those of us who remember the 1970s cannot discount it. And the potential privatisation of utilities is a useful warning indicator in my view to the damage that could be wrought on many UK-based investments and investors. By the time you see it, it may be too late.

JoyofBrex8889 wrote:I dumped my NG last month. Proceeds are now safely offshore in SE Asia. There is no way Marxists are going to rob me of a penny while I draw breath.

I guess one wouldn't call the Chinese Marxists?

regards

Howard

(Apologies for going further off topic).