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The Utility Stocks That Margaret Thatcher Gave Us

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By Tony Reading, The Motley Fool

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LONDON — Baroness Thatcher will be remembered for many reforms, but one enduring legacy for investors is that she gave us the stock market we know today.

Privatization became a key plank of economic policy, and nine of the firms in the FTSE 100 are the direct descendants of state-owned companies privatized during her time as prime minister.

Thirty-five years ago, the precursors to BG , Centrica , Severn Trent , United Utilities , BP, BAE, International Consolidated Airlines, BT, and Rolls-Royce were all state-owned enterprises (in a companion piece, I have covered the five industrial and service companies). Today, they are successful blue-chip firms with a combined market capitalization of more than 200 billion.

The gas industry
British Gas, the U.K.’s monopolistic gas utility, was privatized in 1986 in the famous “Tell Sid” campaign to attract private investors.

The downstream operations were spun off as Centrica in 1997. The gas-distribution assets were demerged as Lattice Group and subsequently became part of National Grid in 2002. The remainder, British Gas‘ upstream activities, became BG Group.

Neither Centrica nor BG stuck to its existing business. Centrica has expanded upstream, and it is now the largest investor in the Cygnus North Sea gas field. A dominant market position in gas distribution has secured good returns for shareholders, and the country’s dependence on gas should boost opportunities in the future.

BG moved into, and then back out of, downstream distribution overseas. The retreat was partly to finance development of its massive discoveries in Brazil’s Santos Basin, and a significant part of the company’s value now rides on how soon and successfully it can start production. It also built a solid and successful international liquefied-natural-gas business.

The water industry
Britain’s regional water companies were privatized in 1989. (The electricity-distribution companies followed a year later, just falling outside Margaret Thatcher‘s premiership.)

Several companies have been snapped up by foreign investors keen to tap into a secure and profitable income stream. Just three listed companies remain: United Utilities in the North West, Severn Trent in the Midlands, and the FTSE 250 company Pennon.

The water companies’ fortunes ebb and flow with five-year regulatory reviews, the next of which begins in 2015 and is now being negotiated. Severn Trent has an almost unblemished dividend record; United Utilities less so.

Margaret Thatcher believed individuals should take responsibility for their own well-being. There’s no question that’s even more important today, especially when it comes to saving for retirement. That’s why The Motley Fool has created a brand-new report: “Five Shares To Retire On.” It describes five companies with healthy balance sheets, dominant market shares, and robust cash flows that could form the core of any portfolio, whether you’re saving for retirement or shorter-term goals. You can download it by clicking here — it’s free.

The article The Utility Stocks That Margaret Thatcher Gave Us originally appeared on Fool.com.

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From: http://www.dailyfinance.com/2013/04/11/the-utility-stocks-that-margaret-thatcher-gave-us/

Business, Finance, Occupation & Industry

The Stocks That Margaret Thatcher Gave Us

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By Tony Reading, The Motley Fool

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LONDON — Baroness Thatcher will be remembered for many reforms, but one of enduring legacy for investors is that she gave us the stock market we know today.

Privatization became a key plank of economic policy, and nine of the firms in the FTSE 100 are the direct descendants of state-owned companies privatized during her time as prime minister.

Thirty five years ago, the precursors to BP , BAE , International Consolidated Airlines , BT , Rolls-Royce , BG, Centrica, Severn Trent and United Utilities were all state-owned enterprises. Today. they are successful blue-chip firms with a combined market capitalization of over £200 billion.

1. BP
Privatization had started in 1977 when the Labor government of James Callaghan sold a 32% stake as part of the conditions of the country’s IMF bailout. Under Margaret Thatcher‘s watch the remaining stake was sold, with two big sales in 1979 and 1987. The 1987 offering coincided with a stock market crash and the stock was left with underwriters, costing them billions.

BP subsequently grew to become the FTSE‘s biggest dividend payer, but the U.S. Deepwater Horizon disaster put paid to that. With a new alliance with Russia‘s state-owned oil company, it’s set to resume its former upwards trajectory.

2. BAE
British Aerospace (BAE) was sold off in two chunks in 1981 and 1985. BAE struggled in the 1990s and merged in 1999 with Marconi to become BAE Systems. BAE sold its 20% of Airbus to EADS in 2006 to concentrate on defense, only for new management to seek a merger with EADs in 2012 to regain exposure to commercial aerospace.

Poor strategic management may have been a counterweight to superb engineering, but a 5% yield in a — literally — defensive sector makes the company an attractive investment.

3. BT
Half of British Telecom was privatized under Margaret Thatcher in 1984, with the remaining shares sold off in 1991 and 1993. It was the first of the blockbuster utility privatizations, with the company at the time enjoying a virtual monopoly (a consortium, Mercury Communications, provided nominal competition).

Shareholders have had a roller-coaster time, with the changing structure of the industry and the technology bubble. More recently, a push into broadband has given the company a new lease of life.

4. IAG
British Airways was fully privatized in 1987, in an offer that was 11-times oversubscribed. It grew in scale with the acquisition of British Caledonian, and then in profit under CEO Willie Walsh, who did some union-wrestling of his own.

IAG was formed from the merger of British Airways and Iberia in 2010, to enjoy greater global scale. However, management is now hampered by Spanish union intransigence.

5. Rolls-Royce
Rolls-Royce is an oddity in the privatization program. It had been nationalized by Lady Thatcher‘s predecessor Edward Heath in 1971 to save it from administration after cost over-runs on the RB211 engine. The Thatcher government returned it to the private sector in 1987, since when it has prospered to be one of three global manufacturers of big engines.

In a companion piece, I’ll cover the four utility stocks.

Margaret Thatcher believed in individuals taking

Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

United Utilities Should Still Offer 4.8% Yield

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By Maynard Paton, The Motley Fool

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LONDON — The shares of United Utilities have advanced 1.3% as of 10:20 a.m. EDT after the company confirmed that current-year profits would be “slightly higher” than the year before.

United Utilities, which supplies water to about 7 million people in North West England, also claimed today that it continues to be “on track to deliver its 2010-2015 regulatory outperformance targets.” Within today’s statement, the FTSE 100 member admitted that sales had increased at a rate “slightly below” the allowed regulated price rise for fiscal year 2013. The shortfall was blamed on the “continuing impact of a tough economic climate on commercial volumes.”

United Utilities added that its capital expenditure for the current year would be at least 750 million pounds and that its current net debt was slightly higher than the 5.3 billion pounds seen at the end of September.

Today’s statement did not mention anything about the dividend, which United Utilities has previously indicated should grow annually by 2% plus the rate of inflation as measured by the Retail Price Index until at least 2015.

Within November‘s half-year results, the group lifted its interim payout by 7% to 11.44 pence per share, and the current-year payout is forecast to gain 7% as well to 34.3 pence per share. The near-term yield is therefore 4.8%, which is greater than the 3.5% currently on offer from the FTSE 100 but less than the 5.7% provided by an alternative blue-chip utility share.

So, if you already own shares in United Utilities, you may wish to read this exclusive in-depth report about that alternative opportunity within the utilities sector. The report calculates this other share might be worth 850 pence versus a current price 700 pence. Just click here to access this special utilities review while it remains free and available.

The article United Utilities Should Still Offer 4.8% Yield originally appeared on Fool.com.


Maynard Paton has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

3 More FTSE Shares for the Week Ahead

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By Alan Oscroft, The Motley Fool

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LONDON — We’ve already taken a look at three companies that are due to bring us updates, and the December 2012 reporting season is almost over. But we do have a few more important firms in the news next week. Here are three you might want to look out for.

Next
Widely considered one of the U.K.’s strongest retailers, Next is due to release full-year results on Thursday. While some retailers have sadly gone to the wall during the recession, all Next suffered was earnings per share falling 8% in 2009, and since then earnings and dividends have continued to grow.

Forecasts suggest a further 12% earnings-per-share rise for the year ending January 2013, which puts the shares on a P/E of 14.7 based on a price of 4,150 pence. That P/E is slightly above the FTSE 100 average, but not by much. There’s also a 13% hike to the annual dividend expected for a yield of 2.5%.

In January, Next issued full-year guidance and estimated that pre-tax profit would be in the range of 611 million pounds to 625 million pounds, with EPS growth 14% to 17%. The company expects to have spent 245 million pounds buying back shares during the year.

United Utilities (NASDAQOTH.UUGRY)
Thursday will also see a pre-close update from United Utilities ahead of annual results for the year ending March 2013. Earnings have been up and down a bit in recent years, but United has generally offered a steady dividend yield of about 5% to 6% during that time. According to forecasts, the total dividend should be up by about 8% to 34.5 pence per share. But with the share price having gained 12% over the past 12 months, the yield could now be around 4.8%.

Within the company’s last interim update in January, we were told that first-half trading had been “in line with the group’s expectations.” It seems unlikely we’ll get any surprises on Thursday. Full-year results are due on May 23.

Premier Oil
We should have full-year results from Premier Oil on Thursday, too, and they should be pretty good. For the year ending December 2012, analysts are expecting earnings to rise 40%, putting the shares on a fairly modest P/E of about 11.5. And that multiple is set to fall to eight for 2013 following another earnings rise of a similar magnitude.

With forecasts like that, it’s perhaps surprising that Premier Oil shares are down about 6% over the past 12 months, especially after January’s trading and operations update revealed that production increased 43% in 2012 and that “a further significant increase in production is expected during 2013.” The group also anticipates breaking new ground by announcing a dividend for the year.

If you’re looking for other candidates that are likely to bring dividends and share price growth in the coming years, it could well pay to examine Neil Woodford‘s latest thoughts. The ace investor, whose Invesco Perpetual …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Are These the Ultimate Retirement Shares?

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By Roland Head, The Motley Fool

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LONDON — The last five years have been tough for those in retirement. Portfolio valuations have been hammered and annuity rates have plunged. There’s no sign of things improving anytime soon, either, as the eurozone and the U.K. economy look set to muddle through at best for some years to come.

A great way of protecting yourself from the downturn, however, is by building your retirement fund with shares of large, well-run companies that should grow their earnings steadily over the coming decades. Over time, such investments ought to result in rising dividends and inflation-beating capital growth.

In this series, I’m tracking down the U.K. large caps that have the potential to beat the FTSE 100 over the long term and support a lower-risk income-generating retirement fund (you can see all of the companies I’ve covered so far on this page).

Over the last few weeks, I’ve looked at United Utilities , Eurasian Natural Resources , Intertek Group , InterContinental Hotels Group  and Aberdeen Asset Management .

Let’s take a look at how each of them scored against my five key retirement share criteria:

Criteria

Eurasian Natural
Resources

United Utilities

InterContinental
Hotels Group

Intertek Group

Aberdeen Asset
Management

Longevity

2/5

2/5

3/5

3/5

2/5

Performance vs. FTSE

2/5

3/5

5/5

5/5

5/5

Financial strength

3/5

3/5

4/5

4/5

5/5

EPS growth

3/5

3/5

4/5

5/5

5/5

Dividend growth

1/5

3/5

4/5

4/5

5/5

Total

11/25

14/25

20/25

21/25

22/25

Eurasian Natural Resources
A history of dodgy corporate governance, problematic debt levels, and a looming dividend cut all take the shine off miner ENRC‘s recently improved production figures. To be fair, ENRC does have some decent assets, but its debt-fueled expansion drive has left it looking short of cash and vulnerable to an opportunistic takeover.

The company is expected to cut its dividend by 50% this year, leaving ENRC shares with a likely forward yield of just 1.8%, well below the solid 3% or more offered by mega-cap miners BHP Billiton and Rio Tinto. The investment case for ENRC is far more speculative and while investors may end up with a good result, this company simply isn’t suitable for an income-focused, low-maintenance retirement portfolio.

United Utilities
It may be surprising to see a high-yielding utility stock score so badly in this review, but at present, I don’t think United Utilities is a very good example of this type of company. It has lagged the FTSE 100 over the last 10 years, during which it has carried out a confusing mixture of acquisitions and divestments and been forced to raise 1 billion pounds from shareholders in a rights issue.

United’s identity as a regional water and sewage company is now more clearly defined, but like its water peer Severn Trent, United currently trades on a forward price-to-earnings ratio (P/E) of 17, making it look quite expensive. For retirement investors, I believe electricity utilities currently offer much better value — National Grid currently has a forward P/E of just 13.4 and offers a forecast dividend yield of 5.7%, considerably higher than the prospective 4.8% on offer from United.

InterContinental Hotels Group
InterContinental Hotels’ brand-focused business model means that it owns very few hotels, preferring instead to license its brands to third-party hotel operators. The strength of InterContinental’s’ …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

The Beginners' Portfolio Ponders Buying an Insurer

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By Alan Oscroft, The Motley Fool

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LONDON — This article is the latest in a series that aims to help novice investors with the stock market. To enjoy past articles in the series, please visit our full archive.

A lot of investors go for diversification, and it can make a lot of sense; if one sector goes through a bad patch, being diversified into others can help offset the pain. But at the same time, diversifying for the sake of it can be a bad move.

But there’s one sector that is very much in the throes of a recovery, and that’s finance — and we haven’t considered it so far. But what possibilities are there? Well, I’ve been eyeing up a couple of giants in the insurance sector, which really hasn’t been showing much in the way of gains yet…

Aviva
Aviva   has results coming out on Thursday, and the City is currently expecting a dividend yield of 7.3% for the year to December 2012 based on the current share price of 349 pence. But earnings forecasts are all over the place, with individual analysts guessing at wildly different figures, so it’s anybody’s guess whether such a payout would be covered.

Asset valuations are pretty important as well, so I’ve added two more figures to our table below, with entries just for the two insurers. NAV is net asset value per share — the book value of all the company’s assets divided by the number of shares in issue. PBV, or price to book value, is the share price divided by the NAV.

From this, we can see that Aviva shares trade for less than their net asset value, which is a good sign, but we’ll need to watch out for that come results time.

RSA
The other is RSA Insurance Group , whose shares shares trade in excess of asset value at the moment — not outrageously so, but RSA is in second place to Aviva on that measure.

RSA has already brought us full-year results — and slashed its final dividend by a third! And the share price slumped by 15% in response. But the overall full-year yield is still a nice 5.8%, based on today’s price of 120p.

The fear, or course, is that Aviva will follow suit and cut its dividend, and the current share price does seem to factor in some of that possibility. We’ll know later this week.

Meanwhile, here’s our updated watchlist, with the two new entries — and I’ve sorted it into alphabetical order this time:

Company Market Cap Price Forward P/E NAV PBV Forward Dividend
Aviva £10.5 bn 349p 8.2 442p 0.8 7.3%
Daisy Group £286m 105p 8.1     1.3%
GKN £4.40bn 276p 10.0     3%
Ricardo £204m 401p 11.9     3.4%
RSA £4.29bn 120p 9.5 108p 1.1 6.2%
Trinity Mirror £292m 118p 3.9     0%
TUI Travel £3.55bn 310p 11.5     4%
Unilever £34.1bn 2,664p 18.7     3.2%
United Utilities £5.04bn 745p 18.3     4.6%
WS Atkins £892m 870p 11.4     3.5%

Since our last look in January, quite a few have moved — mostly upward!

What of the rest?
Out of the list, I’ve definitely lost interest in Unilever , with the shares having risen 9.7% since we last looked. On a forward price-to-earnings (P/E) ratio of nearly 19 now, it seems fully valued to me. And that 3.2% dividend is nothing to shout about, so I can only …read more
Source: FULL ARTICLE at DailyFinance