National Grid

INVESTORS like certainty, something National Grid yesterday failed to provide making it the biggest falling stock on the FTSE 100.

Having previously denied the need for a rights issue, the energy company now says it needs a hefty £3.2bn one to help it finance a £22bn investment in replacing ageing infrastructure and to maintain its credit rating.

The surprise announcement naturally sent investors flying. But the 990m share offering in a two for five rights issue at 335p – a 45p discount to Wednesday’s close – is potentially a good deal for investors.

The increased capital expenditure is reassuringly all allocated to the UK – where we have what at this early stage seems to be a government that is seeking to increase investment in low-carbon technology and infrastructure, and where the business is stronger than in the US. The increased spend in this favourable environment should boost future growth – in spite of the fact that earnings per share will be diluted.

Management is clearly confident – the company directors intend to take up their rights – and it has reiterated that it will raise the dividend by eight per cent a year to 2012. Its full-year results, also revealed yesterday, were solid – with profit before tax up 12 per cent to £1.97bn and return on equity also up – 11.3 per cent over the past three years. National Grid remains confident that 2011 will be another year of underlying growth.

Yet, the shares are languishing. They’ve slipped 4.6 per cent over the past three months, not accounting for yesterday’s seven per cent fall to 576.5p. Now is a good time to pick up them up on the cheap.