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He National Network (LSE: NG.) The share price has fallen more than 10% at the time of writing on Friday.
These are the fiscal year results from the previous day, May 23. And the fact that the announcement included the surprising news of a new share issue worth £7 billion.
Its objective is to finance the company's new growth plans. Chief executive John Pettigrew said: “We will invest £60 billion in the five years to the end of March 2029 – that is almost double the level of investment of the last five years.“
Shares had already fallen 11% on earnings day. As I write, we are looking at a huge double-digit drop in less than two days. Oh!
Dividend cut!
It is not the type of company that I expect to surprise the market like this. In fact, I've always seen it as a bit of a boring job.
It simply pays consistent dividends, year after year, with a clear view of its future profits and costs. Well, not this time. There is one horrible word in this latest update: “foxes”.
The company said: “We will maintain a progressive level of total dividend that will grow from the current level that the Board has recommended for the year to March 2024. This is equivalent to a total DPS. (dividend per share) of 58.52 pence/share for 2023/24, which will then be modified given the increased number of shares following the rights issue.“
So the same total cash dividend in future years, but divided by the largest number of shares?
cheap stocks
This news could make shareholders tear out their hair. But please don't do it, since the new rights issue seems like a good deal to me.
Existing shareholders will have the right to purchase seven new shares for every 24 they currently own. And wait… you'll only have to pay 645p each for them.
That's 43% below the closing price on Wednesday, the day before the news broke. And it's still a 28% discount off the price as I write.
A good buy?
Is National Grid's share price likely to fall as low as the price of the new rights? The new issue aims to raise £7bn of fresh capital.
And the market capitalisation, even after the two-day share price drop, is still £33bn. If the new issuance really helps boost future earnings, then I think it could provide a boost to market cap in the long term.
If anything, I think the market has overreacted. And I might be tempted to buy some at the new market price, even without being able to accept the new offer.
Valuation
The main problem for investors now is that all valuation measures, hopes and forecasts are up in the air. Those fundamentals for such a boringly predictable company? Without sense. And that is the great risk.
We will have to wait until the dust settles before we can monitor the new value of the shares. But if I had National Grid shares, I think I could accept the rights offer.
And what a way to end the week, with National Grid suddenly the most interesting stock on the market. FTSE 100!
