National Grid shares surge on £1bn buyback

by Fiona Walsh

National Grid, Britain's biggest utility, is to return $1.9bn (£1bn) to shareholders and also plans to spin off its wireless infrastructure business.
Shares in the group, which runs gas and electricity distribution and transmission systems, surged 35p to 734p this morning as it also announced a bigger-than-expected increase in profits.

Its pre-tax total for the first half rose by 12% to £872m, comfortably ahead of analysts' forecasts.

Earnings per share jumped by 21% to 21.7p.

Chairman Sir John Parker said the strong performance had been driven by the group's UK transmission and US electricity and gas distribution businesses. He is confident of delivering "continued good results and sustained growth".
Revenues for the six months to the end of September rose by £300,000 to £4.2bn. The group's near $12bn (£6.36bn) acquisition of KeySpan Corp, announced in February, has virtually doubled the size of its business in the US, where it is now the third-largest supplier of gas and electricity.

Reflecting the group's continued focus on UK and US electricity and gas markets, it plans to demerge its Wireless Infrastructure business and also to sell Basslink, its electricity interconnector in Australia.

Analyst Angelos Anastasiou at Evolution Securities said the WI business could be valued at £1.5bn and Basslink at £300m.

The £1bn share buyback is spread over five years but further cash returns could be on the cards for shareholders.

The group said its strategy going forward is not to hold surplus cash, either through surplus assets or an under-geared balance sheet, but to make returns to shareholders.

National Grid said it sees "significant opportunities" for growth in the UK electricity and gas market: "The decline of North Sea gas production, the UK government's renewable energy policy and the need for asset replacement are driving investment in this area."

It plans a significant increase in investment in this area, with spending of £9bn budgeted in the five years to March 2011.

The group also sees "significant growth potential" in the US electricity and gas market following the KeySpan deal.

Source: The Guardian