ii view: National Grid sells chunk of gas transmission business

Pursuing a climate change strategy and with a dividend yield in the region of 4.5%. We assess prospects. 

Part sale of its UK gas transmission and metering business

Chief executive John Pettigrew said:

"This transaction further enhances our role in delivering the UK's energy transition, pivots our portfolio towards electricity, whilst ensuring the security of the energy supply for the country. 

“The Consortium has a long-term commitment to the UK with significant experience in owning and operating infrastructure assets. I look forward to our partnership and continuing to deliver safe and reliable gas service at the least cost to consumers."

ii round-up:

UK and US utility company National Grid (LSE:NG.) today announced a 60% stake sale of its UK gas transmission and metering business to a consortium of infrastructure investors. 

National Grid will receive around £2.2 billion in cash from the consortium buyers along with a further approximate £2 billion from a subsequent debt refinancing following completion of the deal. 

National Grid shares drifted marginally lower in UK trading having gained around 5% year-to-date. Shares for the UK’s biggest renewable energy generator SSE (LSE:SSE) are up by close to 2% in that time. The FTSE All Share index is down around 0.6%. 

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Following the 60% stake sale, National Grid will own a 40% minority equity interest in the gas and metering business via a new holding company called GasT TopCo. 

The sale will see National Grid’s portfolio moving towards electricity, enhancing its role in the UK’s delivery of net zero carbon climate change targets. It follows broader industry moves away from high carbon emitting gas towards renewably generated electricity. Electricity assets as a proportion of its overall infrastructure will grow from 60% to 70%. 

The FTSE 100 utility company has also entered into an option agreement with the consortium for the potential sale of the remaining 40% of equity in GasT TopCo.

Completion of the part sale is subject to regulatory approval and is expected to complete in the second half of the calendar year.

ii view:

National Grid operates energy transmission networks in both the UK and USA. In the UK it owns thousands of miles of both overhead and underground electricity cables. It also owns and operators five North Sea interconnectors through which it imports energy from Europe. By 2030, 90% of the electricity it imports is expected to be from zero carbon sources. In the US, along with both electricity cables and gas pipes, it operates and is building both wind and solar energy projects. 

For investors, the pandemic had hindered performance as businesses closed or used less energy, and negotiations with UK and US regulators are a mainstay and regularly offer uncertainty. But due to a degree of predictability for energy usage, National Grid can offer five-year financial plans which few other companies can. Climate change and exposure to clean energy have also become central within its strategy. For now, and with a historic and estimated future dividend yield of around 4.5% highly attractive in an era of ultra-low interest rates, income seekers at least are likely to stay patient.  

Positives: 

• Attractive dividend payment (not guaranteed)
• Five-year financial outlook previously detailed

Negatives:

• Covid-19 raised costs and reduced consumption
• Net debt of £41.5 billion following its previous WPD buy

The average rating of stock market analysts:

Buy