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National Grid Transco: Trading statement
National Grid Transco today said that pre-tax profits (before exceptionals and goodwill) and EPS for the year to March 2005 will be higher than those reported in 2004; both of the above would have benefited from lower interest costs.
The weakening dollar is expected to have reduced profits by £20m. In the first half, though operating profits were up 2.4% at CER, in sterling operating profits were down 1.5%: The US generates 37.6% of the operating profit thus the weakening US dollar reduces reported results.
The cost reduction programme in the US and the contribution from acquisitions is expected to offset higher maintenance expenditure in the UK electricity distribution business. Capital expenditure for regulatory purposes is higher than the amount reported in the accounts because some items accounted as costs are treated as capital expenditure by the regulator. This effectively increases future revenue (through higher tariffs set by the regulator) increasing future profitability. In the future, under new accounting regulations such expenditure will not be treated as an expense, and will be capitalised and depreciated over the useful economic life, reflecting the economic reality of the expense. This implies that the ‘actual’ profit (in sterling) is higher that the published numbers (to be announced in May 2005)
The sale of the UK gas distribution networks is expected to be completed by the end of June 2005. National Grid will return £2.0bn to shareholders, which will be followed by a share consolidation.
Nation Grid Transco shares trade at a 2006 PE of 12.4× (at 490.5p) in line with the sector as is the 5.4% yield. The management is willing to scale down operations and return money to shareholders is also positive as it suggests a strong focus on shareholder value.
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