National Grid weathers downturn

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Costs associated with its takeover of KeySpan, the US energy company, depressed first-half profits at National Grid, but the London-listed group said earnings for the rest of the year would be stronger.

Steve Holliday, chief executive, said National Grid was weathering the credit crunch and economic slowdown relatively well.

“Raising debt is much harder work than it was,” he said, but added that the group had been able to access the capital markets several times in the past few months. Although spreads had widened on loans and bonds, cuts in underlying interest rates meant that National Grid’s overall interest bill was stable.

National Grid bought KeySpan, a large US gas supplier, in August last year and financed the deal with debt. This meant the group’s interest costs rose, which contributed to a drop in first-half profits before exceptional items to £558m, from £757m in the same period last year. Revenue expanded from £4.26bn to £6.07bn.

Mr Holliday said profits for the second half would be higher, as National Grid’s US gas business made the bulk of its profit during that period.

National Grid was on track to meet investment targets of £3.2bn this year, he said, having spent £1.8bn in the first half.

The group has completed its programme of share buybacks, having returned £1.8bn of the proceeds from the sale of National Grid Wireless to its shareholders. The interim dividend rises 8 per cent to 12.64p.

The shares fell 10p to 680p.

FT Comment

The fall in National Grid’s profits was expected by the market and the results were in line with expectations.

The company has been relatively untouched by the credit crunch so far, and the need for investment in new energy projects in the UK and US means it still has good growth prospects.

National Grid’s shares have held up well, losing just 18 per cent of their value this year. The stock is trading on a forward price/earnings ratio of 13 times, making it more expensive than many other utilities stocks.

However, analysts argue that National Grid’s low-risk profile means that it deserves its premium rating.

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