National Grid profit dims and Thomas Cook books £1.5bn loss

Thursday, May 16, 2019 - 10:08

“As worries over US-China trade bubble away in the background the FTSE 100 was always likely to struggle to make much progress on Thursday and when you factor in a number of index heavyweights trading ex-dividend then it was no surprise to see the index down 0.3% at the open,” says AJ Bell Investment Director Russ Mould.

National Grid

“These results from National Grid are released under the shadow of the Labour’s threat to take the company into public ownership as the party releases its Bringing Energy Home policy document.

“Whether or not the timing is coincidental, the company’s bosses may not be too displeased with the distraction, assuming Labour’s plan doesn’t come to fruition, as this is an underpowered set of numbers.

“Statutory profit is down markedly, returns on equity are under pressure and the company is hit by a write off relating to cancelled nuclear power plants.

“At least the inflation-protected dividend is intact and reassuringly the company has renewed its commitment to grow the payout in line with RPI inflation going forward.

“This notwithstanding regulator Ofgem’s proposals to cut the amount of cash which is flowing into the pockets of shareholders from utilities and put this back in the hands of customers.

“With some long-standing income favourites in the FTSE 100 cutting their dividends recently, notably Vodafone and Marks & Spencer, National Grid shareholders are unlikely to be taking anything for granted given the regulatory and political clouds on the horizon.”

Thomas Cook

“Times are tough for travel operators at the moment and the problem for Thomas Cook is that its ability to navigate a difficult market is hindered by its unwieldy borrowings. Little wonder the company is in a tailspin and descending to new record lows today.

“While the seasonal nature of their business means travel companies are nearly always loss-making in the first half of their financial year, booking a £1.45bn loss is something else entirely. Don’t just book it Thomas Cook it indeed.

“Although this number looks very scary, as much of this relates to a write-off related to a merger from more than a decade ago, it is also worth keeping in perspective.

“Of much greater concern is a major profit warning and the creeping increase in net debt above the £1bn mark, with the company going cap in hand to lenders for another £300m to get it through the next winter season.

“Brexit uncertainty and other headwinds like rising fuel costs, excess capacity and a competitive industry environment give management little room for manoeuvre.

“Speculation over an emergency fundraise, which mounted at the end of 2018, is only likely to ramp up from here despite the company’s plan to flog off its airline operations. Alternatively, could Chinese major shareholder Fosun step in with a bid?”

These articles are for information purposes only and are not a personal recommendation or advice.

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.