Like Quanta Services, (#8 in this series), National Grid PLC (NYSE:NGG) allows investors to participate in the massive build out of electricity transmission and distribution infrastructure necessitated by years of neglect and the growing need to decarbonize our electric infrastructure. See the article linked above for more detail on these two forces driving the sector.
Having its origins in British electricity deregulation in the 1990s, Nation Grid is a regulated utility in Britain and the United States, and operates high pressure gas pipelines and high voltage transmission in Britain, and electricity transmission and natural gas distribution in the Northeastern US. The US operations were acquired with the purchase of Keyspan and the gas distribution network of Southern Company in 2007, as well as some smaller previous aquisitions. They also own some electricity generation assets (mainly acquired as part of Keyspan)
Comparables
The only pure play publicly owned electricity transmission and distribution utility I’m aware of is ITC Holdings (NYSE:ITC), a company I recommended in my article on transmission stocks last April. Since then, the stock has risen almost 30%, and I now think that it looks expensive, compared to NGG and Quanta Services, which is why it did not make it into this series. In contrast, NGG trades at a forward P/E of around 13.3, below the utility industry average, with a dividend of 3.2%.
Environment
As a European company based in Britain, management understands dealing with regulators and customers who are far more concerned with Climate Change and renewable energy than those of it’s recently acquired US operations. I expect that the British experience will be a valuable asset to the US based operation as we see carbon regulations in the US (something I expect early in the next Presidential administration, considering that Congress and all the leading Presidential candidates support it), and as the United States begins to catch up with the Europeans in our level of environmental awareness and demand for lean energy sources.
National Grid’s leadership can be seen in their initiatives, such as their inclusion the Dow Jones Sustainability indexes, and their award winning energy efficiency programs.
Valuation
As a regulated utility (with 95% of revenues from regulated businesses,) large price appreciation is unlikely, but given National Grid’s position and expertise in transmission and distribution, a P/E below industry averages makes the stock seem a solid, safe bet, especially in uncertain economic times.
Click here for other articles in this series.
DISCLOSURE: Tom Konrad and/or his clients have long positions in NGG, ITC, PWR.
DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.
