National Grid Falls as Nationalization Talk Casts Shadow

(Bloomberg) -- National Grid Plc shares dropped the most in more than a month after it unveiled a decline in adjusted operating profit as the U.K. network operator rebuffed proposals to nationalize energy assets.

  • The nationalization proposals “are only going to cause a huge amount of disruption,” Chief Executive Officer John Pettigrew said in an interview. It’s “the last thing you want when you’ve got the need for a huge amount of infrastructure investment.”
  • READ: U.K. Utility Nationalization Plan Unveiled by Labour Party
National Grid Falls as Nationalization Talk Casts Shadow

Key Insights

  • Even if Labour does get in to power, such a plan isn’t seen to have wide political support, while state ownership could be complicated as more than half of the utility’s revenue comes from U.S. assets.
  • The company made “significant” progress on cross-border cables, or interconnectors. It has put the high-voltage lines at the heart of its growth strategy and is continuing with projects that are already underway, amounting to a 2 billion-pound ($2.6 billion) investment in cables to France, Norway and Denmark.
  • National Grid said it expected energy regulator Ofgem to publish on May 23 its latest consultation on proposed gas and power grid price-control levels for 2021. The regulated rate over inflation is meant to save consumers 6.5 billion pounds but will hurt earnings for companies like National Grid.

Market reaction

  • The financial results were “largely neutral,” John Musk, an analyst at RBC Europe Ltd., said in a note. “We recognize the overhang caused by Labour’s nationalization plans, but do not see this risk as ultimately materializing.”
  • Shares slipped 2.8% in London to 819 pence at noon.
National Grid Falls as Nationalization Talk Casts Shadow

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  • Adjusted operating profit slipped 2% to 3.43 billion pounds, beating average estimates of 3.37 billion pounds.
  • Capital expenditure for 2019/20 expected to increase to almost 5 billion pounds, up from 2018/19 level of 4.5 billion pounds.
  • “We remain on track to achieve asset growth at the top end of our 5-7% range in the medium term,” Pettigrew said in a statement.
  • Get more numbers here
  • Statement link
    (A previous version of this story was corrected to show profit fell instead of rose in the headline)

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