National Grid starts sales process for UK’s domestic gas grid

11/11/2015

By RACHEL MORISON
Bloomberg

National Grid, the operator of the UK’s electricity and natural gas networks, plans to sell a majority stake in its domestic gas grid to focus on faster-growing businesses areas.

The disposal will probably be completed in early 2017 and “substantially all” of the net proceeds will be returned to shareholders, the company said Tuesday in a statement.

Shares rose as much as 3.1% on the London Stock Exchange.

The regional gas business, which serves almost 11 million customers, is worth as much as 11.2 billion pounds ($16.9 billion), according to analysts at RBC Europe. Expected annual growth in the gas distribution network is about 2%, while electricity transmission is as much as 6%.

By selling a majority stake, the company will be able to increase its dividend by at least the rate of the Retail Price Index for the foreseeable future.

“The sale of a majority stake in gas distribution assets will no doubt excite the market,” Peter Atherton, analyst at Jefferies International in London, said in a note to clients. “Shareholders hold National Grid for the long-term dividend yield. If the disposal impacts on NG’s ability to maintain its dividend capacity long term then the benefit of a sale may be limited.”

First-half pretax profit rose 21% to 1.37 billion pounds in the six months through September, from 1.14 billion pounds a year earlier. That beat an estimate of 1.1 billion pounds from five analysts, according to data compiled by Bloomberg. Operating profit advanced 14% to 1.84 billion pounds.

Mature Business

“Our gas distribution business is a mature business,” CEO Steve Holliday said in an interview with Bloomberg Television. The planned sale “moves the company toward the higher end of its growth profile,” of about 5%, he said.

The profit gain is mostly derived from National Grid’s US business, which achieved asset growth of 7%, Holliday said in a call with reporters.

Shares rose for a second day, gaining 17.7 pence to 913.7 pence at 10:17 a.m. in London.