Questor: sparks flying at National Grid mean it is time to sell

Phil Bull, a Yorkshireman, a successful gambler on the horses and founder of Timeform, the racing analysis service, once noted with typical acerbity: “Never bet upon stewards’ inquiries, for the stewards know not what they do.”

Having held on to Dignity, the funerals firm, for too long as one regulatory investigation dragged on, only to give up on the stock at almost the worst possible moment in mid-March, and having taken relatively effective evasive action at VP, the equipment rental group, after the announcement of a Competition & Markets Authority inquiry in April last year, this column has a mixed record when it comes to applying Mr Bull’s maxim.

This is pertinent now because National Grid faces not only a potentially stiff new regulatory regime under a proposed Ofgem framework that will run from 2021 to 2025 but, according to reports in this newspaper, the threat of a break-up as a result of policies under consideration by the Government.

Ofgem’s current proposals, against which National Grid is firmly pushing back, could potentially halve the regulated returns that the power transmission giant is permitted to make.

Meanwhile the Government is reportedly looking at a break-up as part of its plan to achieve net zero carbon emissions by 2050, in line with the Paris Agreement of 2016.

Neither threat is certain to crystallise but tackling two “stewards’ inquiries” at once is too much for this column, given the dangers they could pose to profits, cash flow and ultimately the dividend payments that form the bedrock of the investment case.

We must therefore reluctantly decide to pull the plug on National Grid for now.

The company has done the job we asked of it at the time of our initial study in October 2016, namely delivering income, since it has subsequently delivered 270.5p a share in dividends, including a 84.375p-a-share special in 2017.

Those investors who are particularly hungry for income may wait for the payment of the 17p-a-share interim dividend declared last week. The dividend will be paid on Jan 13 to shareholders who are on the register on Nov 27.

But any threat to the income stream must be taken seriously and a safety-first policy may be best. Sell.

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Questor says: sell

Ticker: NG.

Share price at close: 945.4p

Update: Anexo

The arrival of a private equity firm on the share register via DBay Advisors’ aim to take a 29pc stake can surely only serve to highlight the attractions of Anexo, especially as the buyer is prepared to pay a premium to the prevailing market price to get its hands on the stock.

The company, first assessed here two months ago, provides credit and legal services to “non-fault” motorists who are involved in an incident. It helps them to get a hire car while their own is being fixed and possibly to seek legal redress.

Despite lockdown, the number of drivers on the road using Anexo’s credit hire services is expected to rise year on year and is exceeding management’s targets, according to last week’s trading statement. Market share gains as rivals withdraw from the market are helping here, while a lot of Anexo’s customers are key workers who are keeping going.

Court cases also continue at the legal services arm, Bond Turner, and momentum in case settlements and cash collection appears to be gathering after the inevitable disruption caused by the pandemic and lockdown in the first six months of the year.

Profits are expected to fall this year, thanks to investment in new offices and staff to spur future growth, as well as groundwork on a potential legal action against Volkswagen relating to the emissions scandal, not to mention the first half’s slowdown in activity.

However, a swift rebound could be on the cards in 2021 in the absence of further substantial waves of the pandemic.

Price-to-earnings ratios of around 13 for 2020 and 10 for 2021 appear to offer to right mix of protection against falls and potential for gains for a business that is sufficiently well placed and cash-generative to be catching the eye of a private equity investor.

The business model and valuation still both seem attractive. 

Questor says: hold

Ticker: ANX

Share price at close: 146p

Russ Mould is investment director at AJ Bell, the stockbroker

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