National Grid Plc, the operator of the U.K.’s electricity and natural gas networks, plans to sell a majority stake in its domestic gas grid to focus on faster growing businesses areas.
The disposal will probably be completed in early 2017 and “substantially all” of the net proceeds will be returned to shareholders, the company said Tuesday in a statement. Shares rose as much as 3.1 percent on the London Stock Exchange.
The regional gas business, which serves almost 11 million customers, is worth as much as 11.2 billion pounds ($16.9 billion), according to analysts at RBC Europe Ltd. Expected annual growth in the gas distribution network is about 2 percent, while electricity transmission is as much as 6 percent. By selling a majority stake, the company will be able to increase its dividend by at least the rate of the Retail Price Index for the foreseeable future.
“The sale of a majority stake in gas distribution assets will no doubt excite the market,” Peter Atherton, analyst at Jefferies International Ltd. in London, said in a note to clients. “Shareholders hold National Grid for the long-term dividend yield. If the disposal impacts on NG’s ability to maintain its dividend capacity long term then the benefit of a sale may be limited.”
First-half pretax profit rose 21 percent to 1.37 billion pounds in the six months through September, from 1.14 billion pounds a year earlier. That beat an estimate of 1.1 billion pounds from 5 analysts, according to data compiled by Bloomberg. Operating profit advanced 14 percent to 1.84 billion pounds.
“Our gas distribution business is a mature business,” Chief Executive Officer Steve Holliday said in an interview with Bloomberg Television. The planned sale “moves the company toward the higher end of its growth profile,” of about 5 percent, he said.
The profit gain is mostly derived from National Grid’s U.S. business, which achieved asset growth of 7 percent, Holliday said in a call with reporters.
Shares rose for a second day, gaining 17.7 pence to 913.7 pence at 10:17 a.m. in London.