National Grid confirms gas sale talks as earnings surge
As well as announcing strong first-half earnings growth, National Grid confirmed rumours that it has begun to look at potentially selling a majority stake in its gas distribution business and returning the proceeds to shareholders via a likely special dividend.
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Adjusted operating profit rose 14% to £1.84bn, while profit before tax jumped 21% to £1.37bn, with EPS up 22% at the adjusted level to 28.4p.
Headline profits benefited from an excellent performance from interconnectors and property activities, which are strongly weighted towards the first half, with the interim EPS beating consensus by around 13% due to various one-offs.
Chief executive Steve Holliday, who recently announced he would be stepping down by the company's March year end, said the group remained on track to deliver "good performance" this year, thanks to "significant progress" in the US, managing costs and with profits expected to be maintained in line with last year.
"In the second half of 2015/16 we will begin a process to rebalance our portfolio through the potential sale of a majority stake in our UK Gas Distribution business. Following a sale, National Grid's portfolio of businesses will have a higher asset growth profile and will remain well positioned to deliver strong returns and a sustainable, growing dividend."
Management currently expects to grow its total regulated and other assets at around 5% per annum over the next few years, with the confirmation of weekend rumours about the sale of part of the gas distribution business expected to increase this growth rate towards 7%.
"Following completion of a sale, the board expects to return substantially all of the net proceeds to shareholders, while maintaining the strong balance sheet that allows the group to continue to fund its investment programme and maintain the policy of increasing dividend per share by at least RPI for the foreseeable future."
Any sale process is likely to be completed in early 2017.
Analysts at Bank of America Merrill Lynch noted that several one-offs in the non-regulated division were responsible for a 13% EPS beat versus consensus and hence full year earnings estimates have been raised by 4% to 61.1p per share.
The gas sale process and the returning of proceeds to shareholders "should help address the issue of slowing asset base growth", although Merrill any valuation upside from this is likely to be modest in per-share terms and maintained its target price at 965p.