HOPES that the £5 billion sale of up to four of its regional gas distribution businesses is close to completion lifted National Grid Transco to a two-year high.
The electricity and gas network operator said earlier that it would reveal the outcome of the drawn-out sale process in “late summer”, fuelling speculation that the disposals will be confirmed next week.
Such optimism has prompted Merrill Lynch to suggest that, if achieved, a £5 billion price tag could boost earnings per share by more than 15 per cent if a significant proportion of cash were returned to shareholders. With the US broker also pointing out that NGT trades at a discount to its break-up valuation, unlike most other UK regulated utilities, it repeated its “buy” recommendation and 510p target.Elsewhere, Credit Suisse First Boston repeated its “outperform ” advice, suggesting that NGT will return £1 billion through a share buyback or special dividend, while Citigroup raised its price target from 410p to 460p. NGT rose 8¼p to 463¾p, with two of the prospective buyers of the assets, United Utilities and Scottish and Southern Energy, up 3½p at 547½p and 12½p to 738½p, respectively. The FTSE 100 advanced 36.2 to 4,490.1, an eight-week high.
Johnson Matthey rose 10½p to 916½p after strong interims from Umicore, its smaller Belgian rival in autocatalysts. With Umicore raising its full-year earnings guidance to €280 million (£188 million) to €290 million, from a previous consensus of €248 million, CSFB repeated its “outperform” stance on the UK firm.
The broker said Umicore’s comments on revenue and volume growth in autocatalysts backed up Johnson’s confident statement at last month’s annual meeting. It also helped to offset last month’s gloomy comments from Engelhard, the US autocatalyst maker, from whom CSFB believes Johnson and Umicore are taking market share.
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Diageo up 8p to 684½p, extended its rally ahead of Thursday’s full-year results, helped by better than expected prelims from Brown-Forman, the US maker of Jack Daniel’s, which were taken as evidence of a pick-up in growth in the US spirits market. Lehman Brothers yesterday took the opportunity to repeat its “overweight” advice on the Johnnie Walker and Smirnoff maker, suggesting that Diageo will emerge with a positive outlook on the US.
A repeated “buy” recommendation from Deutsche Bank helped British American Tobacco up 6½p to 836½p. Gerry Gallagher, an analyst, ascribes the fall in the shares since June to a shift to low-price brands in Canada, which accounts for 14 per cent of BAT’s profits, and fears over a profit growth slowdown. However, he flags his belief that the cigarette maker will cut costs beyond the £290 million of savings already announced, and claims that, with a forecast total return of 16.6 per cent a year from the shares over the next three years, they are too cheap.
Dixons Group, off 1¾p at 155½p, continued to retreat after Thursday’s “reduce” recommendation from Investec Securities. Mark Charnock, an analyst, expects poorer like-for-like sales growth in the electrical retailer’s UK business in the face of increased competition from Argos, part of GUS, up 2½p to 849p, and the supermarket chains.