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National Grid loses power as Labour unveils nationalisation plans

The UK Opposition party said privatisation of the UK’s energy grid had led to “companies operating the grid to rip customers off”
Labour plans to set up a National Energy Agency to own the nation’s power network

Shares in National Grid PLC (LON:NG.) fizzled lower on Thursday as the Labour party’s plans to renationalise the electricity and gas transmission network put a further dampener on a mixed set of final numbers from the FTSE 100-listed firm.

The main UK opposition party has announced that if it wins the next general election a National Energy Agency will be set up to own and maintain the nation’s power transmission infrastructure.

READ: National Grid 'disappointed' by proposed regulator's proposed price controls

Under leader Jeremy Corbyn and the shadow business secretary Rebecca Long-Bailey’s 'Bringing Energy Home' policy, National Grid and the network arms of Scottish Power and SSE would be taken back into state control.

Long-Bailey said the privatisation of the UK’s energy grid had led to “companies operating the grid to rip customers off”, with shareholders paid £13bn in dividends over the past five years.

Labour, which has previously made public its intentions to nationalise a range of other sectors such as train operating companies, water utilities and Royal Mail Group PLC (LON:RMG), said the nationalisation proposal would enable a speeding up of efforts to cut greenhouse gas emissions and make heating and electricity a human right.

But National Grid claimed the Labour plan would hinder the shift to green energy and said the proposal was the "last thing" that was needed.

READ: SSE shares could slump if a UK general election is called

Results from the blue-chip company, which were also released on Thursday, showed profit before tax in the 12 months to 31 March was down 31% to £1.84bn, with earnings per share falling by 57% to 44.3p.

Having shelled out £4.5bn on capital investment, up 6% on the prior year, National Grid recommended a full-year dividend of 47.34p per share, amounting to £1.2bn. Net debt at the year-end was £26.5bn.

Capital investment is due to rise to nearly £5bn this year, while net debt swells to £27.5bn, even with the benefit of £2bn of proceeds from the sale of Cadent expected in June.

Underlying results were better, with PBT down 3% to £2.5bn and EPS rising 5% to 58.9p. Underlying figures excluded pre-tax charges of £624m for the latest year, while the previous year’s statutory EPS included 43.8p for the impact of £1.5bn exceptional accounting credit relating to US tax reform.

Chief executive John Pettigrew said it was a year of “good strategic progress”, which also saw the launch of new efficiency programmes “to become a leaner, more agile organisation”.

Bonds in return for shares?

Ian Forrest, investment research analyst at The Share Centre, said Labour provided little detail on how much it would cost and how much investors would be compensated for having their shares confiscated.

“The party stated it would provide bonds in return for shares, but also said any compensation would be adjusted to take account of a number of factors including pension fund deficits, asset stripping since privatisation, stranded assets, the state of repair of assets and any state subsidies given to the energy companies since privatisation. That’s a long list and suggests any compensation may be quite small if it amounts to anything at all," he said.

Russ Mould, investment director at AJ Bell, said Pettigrew may not be too displeased with the distraction at it was an underpowered set of numbers, pointing to returns on equity under pressure and a write-off relating to cancelled nuclear power plants.

“At least the inflation-protected dividend is intact and reassuringly the company has renewed its commitment to grow the payout in line with RPI inflation going forward,” he said.

“This notwithstanding regulator Ofgem’s proposals to cut the amount of cash which is flowing into the pockets of shareholders from utilities and put this back in the hands of customers. With some long-standing income favourites in the FTSE 100 cutting their dividends recently, notably Vodafone and Marks & Spencer, National Grid shareholders are unlikely to be taking anything for granted given the regulatory and political clouds on the horizon.”

National Grid shares were down almost 4% to 811.7p on Thursday afternoon.

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