Newspaper article The Evening Standard (London, England)

Ofgem Worries Pull the Plug on National Grid; MARKET REPORT

Newspaper article The Evening Standard (London, England)

Ofgem Worries Pull the Plug on National Grid; MARKET REPORT

Article excerpt


SHARES of National Grid have traded within a narrow band for much of the year, which may have deterred some investors that might have otherwise been tempted to add them to their portfolios.

Having started the year at around the 550p level, they struck a peak of 615p last month, but have since drifted back below the 600p level despite boosting pre-tax profits in 2005 from [pounds sterling]1.7 billion to [pounds sterling]1.9 billion.

The price received a further setback yesterday when US broker Citigroup cut its rating on the shares from buy to hold while repeating its 620p target.

Citigroup is concerned that the industry regulator Ofgem may fall shy of expectations when it releases its initial transmission-price control proposals. Ofgem launched an inquiry into the electricity grid operator last month, accusing the company of anti-competitive practices relating to the provision of gas meters to retail electricity suppliers.

Ofgem said at the time: "We believe that National Grid's conduct amounts to an abuse of dominance which infringes competition law".

Citigroup says: "The cost of capital, capital expenditure and pension proposals are all at the lower end of possible outcomes. If today's proposals are sustained into the final price control, then the company may find it difficult to enthuse investors about its growth story". National Grid would then be dependent on its US acquisition strategy or 4.4 yield to attract investor interest.

Mining shares led the rest of the stock market higher in early tradingbut soon ran out of steam after copper prices fell following the release of a report showing that world supply exceeded demand during the first quarter of 2006.

According to the latest monthly report by the International Copper Study Group, world copper supply beat demand by 64,000 tonnes in the first quarter and by 15,000 tonnes in March alone.

WPP Groupwas among the steepest fallers on the FTSE 100 yesterday after the world's second largest advertising company revealed weaker-than-expected revenue growth since the turn of the year. …

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