Jeremy Corbyn’s 2019 election manifesto stunned investors by laying out a radical plan to bring major infrastructure firms back into public ownership.
If Labour wins a Parliamentary majority in 12 December’s general election, it will set in motion plans to take the likes of BT’s broadband arm, Royal Mail, water companies, rail networks and energy firms into government hands.
Running away
Business baulked at the idea. Water UK CEO Michael Roberts slammed the manifesto, saying “one way or another taxpayers and pensioners will have to fund the eyewatering multi-billion pound cost“.
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So came the news that £31bn market cap electricity network operator National Grid (LSE:NG.) and SSE (LSE:SSE) have both moved their ownership offshore to slip out of Corbyn’s intended grasp.
National Grid said Labour’s state ownership “would be highly detrimental” to the millions who hold shares individually or through pension funds. Now is the time to tackle the climate crisis, “not waste years attempting a very costly, complex and controversial nationalisation,” SSE remarked.
Investors fear that Labour could renationalise FTSE 100 giants for less than they are worth, so shareholders might be paid lower than market value for the shares they own.
Going offshore won’t stop either company being taken over, but would mean a new government has to pay more to take control of each business.
Long-term gains
SSE took a radical decision of its own this year: to sell its consumer energy arm to newcomer Ovo for £500m.
This bold strategy means it drops the low-margin, high-cost side of the company to refocus on building out offshore wind turbines. Q3 2019 saw renewables provide more electricity than fossil fuels to UK homes and businesses for the first time in history, and we have the world’s largest offshore wind market with 40% of global capacity, so this move makes a great deal of sense to me.
With a trailing price-to-earnings ratio of 19 and a pretty stellar dividend return of 7.4%, SSE offers a positive investment choice in my opinion. I’m not too concerned by the dividend cut to 80p per share because of the long-term strength in the balance sheet and the good decisions CEO Alastair Phillips-Davies is making.
At around 1300p shares are trading at 2012 levels and bouncing back so if you don’t already own SSE I’d say now is a good time to buy, even with the faint chance of renationalisation.
National pride
Since I last tipped the energy infrastructure operator, the NG price has gained around 1.8%.
National Grid shares trade around 20 times last year’s earnings, and with a solid 5.2% dividend you can have faith you’ll be repaid for its long-term, clear-eyed vision.
CEO John Pettigrew said that 14 November’s half year results showed “solid financial performance” with “strong organic growth” at the top end of predictions. Pettigrew has committed to boosting dividends per share ahead of inflation for the foreseeable too.
Underlying operating profits were up 1% due to good progress in the US, and underlying earnings per share 2% higher at 20p. The key benefit to National Grid is a lack of competition: all the UK’s energy firms — renationalised or not — use its distribution network so shareholders are protected for the long term.
I’d argue that whatever your stance on their offshore escape, these two FTSE 100 stalwarts make strong arguments for long-term investments, especially in a tax-free Stocks and Shares ISA.
