Investment analysts suggested the sale is “plausible” given this arm is not part of the transmission system operator’s core business. However, the £1 billion price tag falls short of consensus valuations due to the limited lifespan of the business in the face of the UK government’s planned smart meter roll out.
The Sunday Times said that National Grid’s 17 million gas meter assets will be sold ahead of the roll out of smart meters which is scheduled to be completed by the end of the decade, but many believe a full transition could be delayed.
“The assets have a limited life and are gradually being replaced by the roll-out of smart meters. Currently this is mandated by the UK government to be complete by 2020. This is a target that we believe is likely to be missed by the industry which has installed around 1.5m meters so far and where the communications infrastructure expected to support the new meters has yet to be delivered by government,” analysts at RBC Capital said.
The Sunday Times also suggested a sale of the company’s UK gas distribution assets but analysts said this is “less likely”.
Investors at RBC Capital and Citigroup value the metering business – which includes maintenance, installation and meter reading – at £1.6 and £1.5 billion respectively, meaning a lower sale price of £1 billion could have a small negative impact for the company’s value overall.
“On the positive side, further strengthening the balance sheet through the sale of a non-core business would further enhance the sustainability of the dividend policy through to the end of the current regulatory period, even creating potential for a temporary DPS growth acceleration, particularly if operating performance vs UK regulatory targets remains at high levels,” Citigroup added.