Top FTSE 100 utilities group National Grid (LSE: NG) (NYSE: NGG.US) is due to announce its half-year results next Thursday (21 November).
At the time of writing, National Grid’s shares are trading at 777p – down 6% from six months ago compared with a flat Footsie.
How will National Grid’s business have performed in the first-half compared with last year? And is the group on track to meet forecasts for this year’s key full-year numbers? Here’s your cut-out-and-fill-in table!
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| H1 2012/13 | FY 2012/13 | H1 2013/14 | Forecast FY 2013/14 |
Forecast FY growth |
|
|---|---|---|---|---|---|
| Revenue | £6.1bn | £14.4bn | ? | £14.8bn | +3% |
| Adjusted earnings per share (EPS) | 23.0p | 56.1p | ? | 52.2p | -7% |
| Dividend per share | 14.49p | Final: 26.36p Total: 40.85p |
? | 42.2p | +3% |
Analysts are forecasting a 3% rise in revenue for the full year, but a 7% fall in adjusted EPS. National Grid’s first-half EPS has averaged a bit over 38% of full-year EPS over the past four years. If the company has hit the average in this year’s H1, look out for EPS of around 20p.
The dividend
National Grid’s dividend is a big draw, making the company a popular share with income investors. A number of regulatory matters have been concluded over the past year, giving National Grid’s management good clarity on their business well into the future. Most notably, the company agreed pricing controls with UK regulator Ofgem for the next eight years.
Last year, National Grid paid a dividend of 40.85p, thereby meeting the 4% increase target it had set while awaiting the outcome of Ofgem’s deliberations. The board has now set a new, longer-term policy: “Aim to grow the ordinary dividend at least in line with the rate of RPI inflation each year for the foreseeable future”.
The company has already guided shareholders on the interim dividend it expects to declare this year, so you should be looking out for a repeat of last year’s 14.49p payout. Note, though, that analysts are forecasting an increased final dividend at a level that would give a full-year 42.2p payout — 3% up on last year. The forecast 42.2p represents an income of 5.4% at today’s share price of 777p.
Free cash flow
Dividends come out of free cash flow — the cash a company has left after all other expenditure. The table below shows National Grid’s key cash flow items for the past five years.
| 2008/09 | 2009/10 | 2010/11 | 2011/12 | 2012/13 | Total | |
|---|---|---|---|---|---|---|
| Operating cash flow (£bn) | 3.41 | 4.52 | 4.86 | 4.23 | 3.75 | 20.77 |
| Capital expenditure (£bn) | 3.18 | 3.11 | 3.13 | 3.35 | 3.39 | 16.16 |
| Free cash flow (£bn) | 0.23 | 1.41 | 1.72 | 0.88 | 0.36 | 4.16 |
| Dividends paid (£bn) | 0.84 | 0.69 | 0.86 | 1.01 | 0.81 | 4.21 |
Source: Morningstar
As you can see, in three out of the five years, free cash flow hasn’t been enough to cover the dividend. However, taking the five years as a whole, there isn’t too much between the total free cash flow and the total dividend payout.
National Grid has an even bigger capital expenditure programme over the next eight years than in the past, so keep an eye on free cash flow and also on debt. Net debt stood at £21.4bn at the end of the company’s last financial year, and is expected to rise by around £1.5bn this year.
