The Lemon Fool

Isn't the Morning Star article focusing predominantly on NG's US operations?

We have reduced our fair value estimate to 990p a share from £10.50 due to higher capital expenditure estimates and lower earnings estimates for the US regulated activities because of higher operating costs.

We downgraded our moat rating – which indicates that the company has a slender competitive advantage - from narrow to none on our lack of confidence that National Grid can consistently realise returns on capital greater than its cost of capital. The historical rate-setting structures – which determine how much utilities can charge customers - in the US are a key drag on return on invested capital (ROIC) going forward, especially as National Grid invests heavily in the US during the next three to four years. In the US, National Grid has struggled to keep pace with its allowed returns and regularly earns 2-to-3% less than its UK operations.

Perhaps they're too hung up on the US side of the business.

richfool wrote: Perhaps they're too hung up on the US side of the business.

You may well be right and I think NG itself spent some time discussing that in their recent Annual Report. Still, they will have been benefiting from the strength of the US Dollar to Sterling which must have helped the outcome.

I rather think that Fred is a little too gung-ho about NG and its 'economic moat' because as I said it is not a licence to print money and with political issues threatening an ever larger influence, I think all holders (including me) need to be on our guard.

Dod

I vaguely remember National Grid going through a capital raising exercise of some sort, back in around 2013/2014. I can't remember the reasoning behind it.

richfool wrote:I vaguely remember National Grid going through a capital raising exercise of some sort, back in around 2013/2014. I can't remember the reasoning behind it.

In http://www.investegate.co.uk/national-g ... 00118369E/ they commented that:

"Strong financial position: issued £2bn of very competitively priced hybrid bonds
...
From a financing perspective, the Group made significant progress over the year, successfully completing a £2bn hybrid debt transaction and raising £3bn of further long-term funding at very competitive rates.

Overall, this regulatory, operational and financial progress combined to underpin the Board's confidence in a new progressive dividend growth policy, announced in March 2013. Continued, sustainable, dividend growth is an essential element of the total return that National Grid delivers to its shareholders. The Group's strategy and financing structure are fully aligned with supporting this, enabling the business to deliver further value through investment led growth.
...
In February 2013 National Grid raised approximately £2bn of new long-term funding through the issue of very competitively priced hybrid debt securities. These have a final maturity of 60 or 63 years, can be called at the Company's option at an earlier date and have a number of additional features which differentiate them from the Group's other unsecured debt including coupon step-ups and the ability to defer coupon payments. The credit rating agencies treat these instruments partially as equity in their consideration of the Group's financial metrics, effectively strengthening the Group's balance sheet compared to the issuance of traditional debt.

The ability to issue hybrid debt represents an opportunity for the Company to access additional liquidity and provide further support to the Group's growing balance sheet if required.

In addition to these hybrid securities, National Grid issued over £3bn of new long-term debt during the course of the year, including the largest corporate Maple bond issue at the time, to finance the ongoing operations and growth of the Group.

National Grid expects to raise, on average, around £3bn of long-term debt each year to fund the expansion of the business and to refinance maturing debt. The current credit ratings of the Group are an important factor in the businesses' ability to access funding at attractive rates and in a wide range of currencies and markets. The Board believes that maintaining strong credit ratings, with the resultant access to liquidity and attractive funding costs, is a key driver of value for the Group."

That's all I can find in the RNS.

TJH

FredBloggs wrote:NG alert - Shares on sale, top up while stocks last. Lovely divi too

Fred, I think that was just a "Happy Hour" promotion. The SP bounced back up quite quickly the same day.
Currently around 917p.

FredBloggs wrote:Well, NG is on sale again today. It's bed time here now, so I've made a limit buy order to top up overnight. Let's see if the magic pixies fill the order and in turn deliver me a nice little present by way of a divi after the new year.

I am watching it too, Fred. Though I have a holding already and don't really want to go overweight on it.

Let's hope the magic pixies fulfill your dreams for you!

I have been wondering if NG might just incorporate in the USA

I do hope that this will one day be the case. I do hold but would hold more if they were ex UK, and not just for the quarterly div.

As a subscriber I expect Fred will have spotted this article in the Telegraph. What I could view free petered out just after a "but..... "! Thus I wonder what the bottom line recommendation was?

http://www.telegraph.co.uk/investing/sh ... ed-income/

FredBloggs wrote:

FredBloggs wrote:Nothing found under the pillow this morning Perhaps my limit order was a penny or two too ambitious. Not to worry, I'll leave the limit order in place till month end and see if I get lucky.

Just to add, it feels real nice to effectively get my leccy and gas FOC paid for by NG

Woke up this morning with a little present under my pillow. Apparently, the magic stock market pixies went shopping again last night. There it was, under the pillow when I woke up, a nice little parcel of NG stock bought and delivered at 890p. It seems there was a Blue Cross Sale on NG for a short while yesterday. Now I need to think about getting a leccy car to make the best of the free leccy delivered courtesy of NG divis. Ex divi on November 24th, I think, so bought nicely in time to capture it

Well actually, I did succumb and top-up yesterday, though I got mine at 896p. I was doing a bit of top-slicing and had some leftover, and as you say was alert to the approaching ex-div date.

viewtopic.php?f=15&t=8293&p=95443#p95443

FredBloggs wrote:Woke up this morning with a little present under my pillow. Apparently, the magic stock market pixies went shopping again last night. There it was, under the pillow when I woke up, a nice little parcel of NG stock bought and delivered at 890p. It seems there was a Blue Cross Sale on NG for a short while yesterday. Now I need to think about getting a leccy car to make the best of the free leccy delivered courtesy of NG divis. Ex divi on November 24th, I think, so bought nicely in time to capture it

Fred, you might be able to get an even better "Black Friday" deal on NG now. Further recent falls and going "Ex-dividend" today, have brought the SP down to around 863p. (Yield; 5.59%)

GoSeigen wrote:Can anyone explain why this is NOT a falling knife? Looks like one for writing options against IMO. [Then you probably can buy them for 900p]

GS

I wrote the above near the start of this thread. Thoose who replied might want to re-evaluate the situation and their reasons for confidence in this stock.

When I asked about NG. being a falling knife the risk was not yet clear in my mind. Since then, NG. has fallen though some technical levels. It looks in a short-term downtrend. Gilts likewise are in a downtrend. That's not to say there couldn't be a tradeable pullback from current oversold levels. However IMO such a pullback might be better used as a selling opportunity.

Look out, there's not much below. Sould half my SSE some time ago. The rest will go into a meaningful rally.


GS

FredBloggs wrote:Multi year lows at NG. Time to buy some more? Still confident this is the nearest thing to a legalised cash printing machine, though my entry point was a little premature, it seems.

Nice dividend due today. I assume that the cause of the price weakness is the political threat which is hardly surprising seeing the ineptitude displayed by Theresa May at almost every turn. meanwhile enjoy!

I hold.

Dod

Questor is keeping its faith in National Grid:

Questor: National Grid is turning to America to avoid political risk and now looks cheap

http://www.telegraph.co.uk/investing/sh ... -risk-now/

FredBloggs wrote:What's not to like?

The shadow of a Labour victory creating turmoil in NG's market...

Mr Market seems to think NG should carry a price discount for some reason, despite the rosy future of being the incumbent distributor in an market with rapidly increasing consumption.

IF Labour get in, I'd expect NG, if not nationalised (nightmare scenario) to at least be clubbed over the head by a newly empowered regulator. I suspect it is this (distinctly non-SI) worry that is holding the price down, else it may be that the projected increases in demand are worrying due to the implied infrastructure investment needed? IF technology comes together in a joined-up-thinking way, perhaps this will not be needed, but it may still worry investors and analysts.

Of course, if my rosy little future doesn't come to pass, you've got yourself a bargain

VRD

In the meantime, a Daily Telegraph article on Jan. 18 (http://www.telegraph.co.uk/money/specia ... nd-growth/) about future dividends, included the following:

"National Grid will maintain its above-inflation dividend increase, but the sustainability of that policy remains to be seen. It has the lowest dividend cover in the sector."

FredBloggs wrote:

Bouleversee wrote:
In the meantime, a Daily Telegraph article on Jan. 18 (http://www.telegraph.co.uk/money/specia ... nd-growth/) about future dividends, included the following:

"National Grid will maintain its above-inflation dividend increase, but the sustainability of that policy remains to be seen. It has the lowest dividend cover in the sector."

Rather overlooks one vital aspect though. Virtually unique as a company, it's customers simply cannot go elsewhere. They have to pay NG or they sell no power or gas to their customers. NG must have the most secure income of just about anyone I can think of except the government.

I don't think anyone is seriously disputing the customer side of the NG business, but rather they are asking for how long they will be able to independently continue with their current pricing-power....

Given that their relatively high dividend rate will be absolutely interlinked with their ability to do this, and there's a likelihood of a share-price impact if that situation were to change, I think this is where the real capital risk lies in terms of NG being a high or low risk investment at this point.

There's also the relatively high level of debt that the company currently carries, which would obviously also come under strain in terms of managing it should their pricing power come under future regulatory pressure, and that's before we start to look at the risk of rising interest rates, and how that might negatively impact the debt-payment situation...

I should add that as an owner of share in a couple of related companies, I'm simply monitoring the situation at the moment, and have no strong view, but I can say that I'm not adding to those holdings at the moment, all the same....

Cheers,

Itsallaguess

FredBloggs wrote:

Bouleversee wrote:In the meantime, a Daily Telegraph article on Jan. 18 (http://www.telegraph.co.uk/money/specia ... nd-growth/) about future dividends, included the following:

"National Grid will maintain its above-inflation dividend increase, but the sustainability of that policy remains to be seen. It has the lowest dividend cover in the sector."

Rather overlooks one vital aspect though. Virtually unique as a company, it's customers simply cannot go elsewhere. They have to pay NG or they sell no power or gas to their customers. NG must have the most secure income of just about anyone I can think of except the government.

The reverse is equally true. It cannot move half its existing assets (the UK ones) anywhere else.

Essentially the UK regulator (Ofgem, and behind it, parliament) has the powers to dictate an acceptable level of debt, the location of the HQ, the ownership of the assets, an acceptable dividend policy, an acceptable charging structure, and taxes or special levies that the government might feel fit to impose, and in extremis who is the actual owner (i.e. nationalisation). Over on the other side of the pond the same is true with FERC substituting for Ofgem and defacto nationalisation being less likely but still possible (why do you think US infrastructure suffers from a very long term underinvestment, much like Germany).

Don't get me wrong. I like NG and think that the strategy it is pursuing is a sensible balance of seeking the rewards whilst protecting against the risks as far as is reasonably possible. That is partly why it is loaded up to the gills with debt (as a poison pill against nationalisation, and because interest can be written into the fair charging calcs). However it makes me a holder, not a buyer. The risks are very real.

regards, dspp

"And, again, that's all true too. I have speculated elsewhere here, that given the will, I think NG could make its UK assets so toxic only a lunatic would take ownership of them."

Presumably that applies equally to all retail investors. Are you still happy with your present, Fred, or do you wish you had sent it back?

I think TMF still plug NG as one of their 5 to retire on. I have a modest holding but don't feel tempted to add more while the price continues to fall..

Bouleversee wrote:I have a modest holding but don't feel tempted to add more while the price continues to fall..

So you would add if it got more expensive?

StepOne

FredBloggs wrote:

StepOne wrote:

Bouleversee wrote:I have a modest holding but don't feel tempted to add more while the price continues to fall..

So you would add if it got more expensive? "


Not necessariily but you only know when the bottom has been reached when there has been a bit of a recovery and even then you can't be sure it will last, but imo and from my experience I'd rather buy at that stage than when it's still falling.