With the winter ahead and the temperature holding above average how will that affect the Utilities like National Grid who have worldwide exposure to global warming plus solar as a competitor. Natgas has not rebounded and looks to not be returning anytime soon. $ngg is @ $57.8 in the fall with more days of warm than usual so lets track it as a global warming victim 5.21% yield keeps the price target to 60.00 But If they cut the dividend its hitting 48.00 if not then they will remain stable but if that dividend ever goes it a blood bath. For now buy for the dividends & sell calls is what I think.
I think there are far better global warming plays. It's important to understand how regulated utilities earn their returns. Especially regulated electric utilities in deregulated markets like most of National Grid's U.S. markets. The distribution utility earns a regulated rate of return on their investment, in National Grid's case it's around 11%. That means for every dollar in spending on building and maintaining their power lines they get an 11% return in the form of what they're allowed to charge you in the distribution charge on your bill. Up to a point they're indifferent to how much power is actually carried on their lines because they're just compensated for having the lines available. If electric load fell by 25% next year their profit would probably actually go up because their investment would stay relatively constant which is what their return is based on and they face some losses with unexpected increases in demand because of the way rate cases work. If demand stayed low for years they would eventually have a smaller rate base because they wouldn't need to continue to invest in the infrastructure as much, but it's a very delayed and second order effect. In the end, you're going short a state granted monopoly, which is a heck of a headwind. I'd say any carbon intensive industry that may have to begin paying the cost for those emissions are a much better play, as are those with exposure to low-lying storm plagued areas like the Gulf and SE coast. Of course you can also make direct plays for renewable energy generators and those building renewable energy projects and go short the underlying carbon intensive commodities and suppliers for those commodities; I'd say those are bolder and riskier bets because of their volatility and other supply and demand factors that influence them.
The margins will be getting crushed with global warming and tech constraints. They recently sold a division to increase earnings and offers a buyback. Its a major Natgas calamity on the horizon. Solar offers users the ability to escape the Gas overlord bills that hits you from the cradle to the grave. $ngg has an unsustainable dividend. Watched the decline in September to December then saw the rebound when the market took into consideration the sale of the unit and potential buy back. Down here it doesn't seem like its working. If they announce the dividend change its hitting the 50s.
We may get a look at $48 on National Grid but this next season will see less revenue after last years sale. Its buy back stalled losing a few million and market value. Inexperienced management team & young CEO without teeth. Still waiting for the eventual earnings decline overall in the industry. Utilities cannot sustain their Dividend appeal with the technology onslaught. Not to mention when a hurricane hits the usage levels in service areas affect revenue. http://money.cnn.com/quote/forecast/forecast.html?symb=NGG
If you're interested in regulated utilities I'd highly recommend taking the time to read a book or two on them because they don't work anything like you think they do. Electricity Market Reforms: Economics and Policy Challenges by Belyaev and Electricity Restructuring in the United States: Markets and Policy from the 1978 Energy Act to the Present by Isser are both good. It's a complex subject that clearly I wasn't able to do justice to in my already lengthy post above. Statements like "when a hurricane hits the usage levels in service areas affect revenue." and "Its a major Natgas calamity on the horizon." make perfect sense if you're talking about almost any company other than a regulated distribution utility like National Grid, even if you're talking about a merchant power company. However they are completely nonsensical statements if you're talking about a regulated distribution utility like National Grid. If fact National Grid would see significant increase in profits if a hurricane wiped out half their distribution system and they had to rebuilt it. It's actually one of the very best ways they could significantly increase their profit. If that doesn't make any sense to you, you don't grasp the concept of rate basing allowed rates of return, which is the fundamental business basis of regulated utilities. If you don't get that, you will never get utilities and your analysis will not only be randomly wrong but actually wrong more than half the time because regulated utilities work in a fundamentally different way than a regular company.
Okay lets see - 20 years in this business a book on the market - plus a track record in the energy sector plus a few industry reports to quote from. Question 1 when a hurricane hits the usage levels in service areas affect revenue.- When there are no homes using the service what happens to the amount of revenue?___ Question 2 Is there revenue based on how much they distribute in their system or the amount they bill to the end consumer?_____ If fact National Grid would see significant increase in profits if a hurricane wiped out half their distribution system and they had to rebuilt it. No one is talking about rebuilding anything as a topic. The fact their system would have to be shut down makes it a revenue killer. Its a toll company for resources which when not moving is not generating revenue. When we shorted the Oil market at $100 where were you? If you don't get that, you will never get utilities and your analysis will not only be randomly wrong but actually wrong more than half the time because regulated utilities work in a fundamentally different way than a regular company. I would place my track record against yours any day of the week. This short has been on since the 70's now just waiting for the next steps to come whoch is the dividend which will be unable to be maintained. Power distributors work differently than energy companies like Exxon - But some people lump them all in one bag. http://www.myoffices.com/book buy low sell high buy low. Its not a full fledged utility since it sold off its major assets & therefore it will not be able to maintain the level of revenue it once had which affects revenue which affects P/E and eventually the price.
This isn't a subject up for debate my friend. Regulated utilities earn a regulated rate of return based on their investment. Full stop. Their profits aren't determined by how much electricity their users use (except for some second order effects I described in my first post on this thread). National Grid has about an 11% allowed rate of return on their investments. If they've invested $1B, they are given $110M in return every year through rate basing. Regardless of how much electricity their customers use or that flows through their lines. If a hurricane wipes out a quarter of their infrastructure and they can invest $1.25B then they get $137M in return. Again regardless of how much energy flows through their lines. I bring that up because it's counterintuitive and shows your assessment that a hurricane would hurt the company financially is actually 180 degrees out of line with the reality under which they work. They are compensated by investment as allowed by their regulator, the utility commission in their state, not "tolling". This isn't the energy sector, these aren't regular capitalist companies. They exist in a very special corner of the capitalist world called regulated monopolies, and the rules are completely different for them than your experience with other energy companies leads you to believe. This isn't a pissing contest, you just clearly don't grasp rate basing and allowed rates of returns for regulated utilities. Sorry, no reflection on you, you're simply uninformed on this particular subject. No shame in that, when I find that out I usually go back to the books and use it as a learning opportunity; I've found belligerence doesn't generally move me forward. I also generally don't want to continue to sound like an ignoramus to people who actually work in a field when they tell me that I fundamentally misunderstand how something works. You? Tell you what, why don't you give one of those books a read and then come back and we can have an intelligent discussion about this. Or just describe what rate basing is for me and how specifically I'm misinformed on it. I'm happy to hear your thoughts on it?
No one is talking about their channels being wiped out. Its so funny when new changes contribute to energy spikes everyone is enamored about the impending growth but when the topic of a decline in usage comes into play every wannabe anilist wants to quote policy. There are different areas in the energy sector and as you stated in your own analysis the rates they are valuated at is based on a predetermined level based on infrastructure. They sold much of these assets so they are no longer getting those rate exchanges. To make up this exchange short fall they will have to rely more on revenue which is declining. This is not an industry wide analysis this is a national grid $ngg based issue. Which by the way is a global company so your analysis based on us rule is not only no applicable here it shows that you never did your homework. This is not an infrastructure play its a revenue play. To be successful you have to dig deeper on the trade to dissect the reasons why it may not fare well not make unsubstantiated industry norm claims on a company that just sold off most of its revenue generation modules and therefore its revenue ratio is affected since that no longer contributes to the bottom line. https://www.theguardian.com/business/2016/dec/08/national-grid-stake-gas-macquarie-bank http://www.bbc.com/news/business-38248198 If you try to pull in data this is what people need to read & look at the map. Plus we are talking about the Gas usage here. https://www.energysmart.enernoc.com/regulated-and-deregulated-energy-markets-explained
I'm sorry, I assumed if we were talking about the impact of a hurricane on National Grid we were talking about their U.S. operations which consist entirely of regulated distribution companies for electricity and gas, not their U.K. operations. My mistake. As for the rest, you can lead a horse to water...