UK Edition
Questor: a utilities minnow well placed to benefit from a shake-out of the energy sector
GB Energy, the utility company, ceased trading late last month and although Co-op Energy swiftly took on its 160,000 customers, another potential beneficiary of any shake-out in the market is Telecom Plus.
It has a 20-year power supply deal with npower, which will protect it from the worst of any wholesale cost increases.
This in turn could give Telecom Plus scope to win market share, both by undercutting the big firms, such as SSE and Centrica, and by winning back custom from recent entrants to the market, whose business model will come under ever-greater pressure the higher energy prices go.
For all of the difficulties it has faced over the past three years, Telecom Plus has still generated plenty of free cashflow and consistently grown its dividend. A 4.2pc prospective yield is an additional attraction and a further potential source of support.
The increasingly fragmented energy market looks primed for a shake-out and Telecom Plus looks well placed to capitalise.
Questor says: buy
Ticker: TEP
Hurricane Energy
Any further increases in the oil price after November’s Opec meeting and last week’s non-Opec summit would be helpful but the investment case for Aim-listed Hurricane Energy rests more with matters that are particular to the oil explorer.
Someone, somewhere, clearly thinks the company, worth £466m, is capable of whipping up a storm. It raised £52m in April and another £70m in October via the stock market.
All eyes are now on its Lancaster site in the North Sea, where Hurricane is targeting “fractured basement” reservoirs, a largely untapped source of hydrocarbons in Britain. The company has yet to produce any oil or generate any revenues and its first-half numbers shows a loss, albeit a modest one. As such, Hurricane is suitable only for very aggressive, risk-tolerant investors.
Questor says: speculative buy
Ticker: HUR
Sky
As we suggested in October, there was always the chance that the Murdoch family would mount a second bid for Sky if the shares slipped much further, especially with the pound weaker too. Friday’s preliminary £10.75-a-share offer from the Murdoch family’s 21st Century Fox business in America is therefore no great shock.
The shares are trading below the offer price, as this is not a final bid; that must come by Jan 6.
Political and regulatory problems scuppered the 2010‑11 bid but they should prove less of an obstacle this time around even if Ofcom, the broadcasting regulator, decides to review the deal.
A bigger challenge for the Murdochs may come from the offer price. Shrewd shareholders will notice that, in dollar terms, the £10.75 opening salvo is not much different from the 800p offer made in 2010‑11.
There has to be a chance that investors will haggle for a higher price given the strategic importance of the asset to the Murdoch family.
This bid is delicately poised but a higher offer remains a possibility and Sky still has long-term stand-alone attractions.
Questor says: buy
Ticker: SKY
National Grid
Shares in the energy distribution company have done poorly since we tipped them in October at £10.58, but National Grid’s prospective 5pc dividend yield for 2017 looks well underpinned by earnings and cashflow.
In addition, last week’s completion of a deal to sell a 61pc stake in its gas distribution division will enable the FTSE 100 constituent to return around £4bn to shareholders through a special dividend (above and beyond the yield mentioned above) and share buy-backs.
To put that figure in context, analysts’ consensus forecast of a 45.6p-a-share regular dividend for 2017 would return about £1.7bn to shareholders.
Questor says: buy
Ticker: NG.
Russ Mould is investment director at AJ Bell, the stockbroker
Questor archive: telegraph.co.uk/questor