National Grid, car dealerships & investment trusts: The Companies and Markets Show
Oct 18, 2024
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Jemma Slingo, an expert on utility company transformations, and Alex Newman discuss National Grid's ambitious £60 billion investment plans, pondering its shift from an income to a growth stock. Mark Robinson dives into Virtu Motors' struggles in the automotive market, revealing insights on valuations and future prospects. Lastly, Holly McKechnie navigates the complexities of investment trust costs, focusing on recent regulatory changes and what they mean for investors amidst the shifting landscape of the financial sector.
National Grid's substantial £60 billion investment over five years emphasizes its shift towards being viewed as a growth stock amid increasing electricity demand.
Vertu Motors demonstrates resilience in the automotive market by focusing on the strong used car sector and enhancing digital services for profitability.
Deep dives
National Grid's Major Investment in Infrastructure
National Grid is making a significant £60 billion investment over the next five years to enhance both the UK and US energy grids. This investment is essential as electricity demand is anticipated to double in the next quarter-century, requiring upgrades to the existing infrastructure. The transition to renewable energy sources, often generated off the coast, necessitates additional reinforcement and expansion of the grid to connect new energy generation sites with population centers. Currently, inefficiencies in the grid are causing expensive disruptions, such as paying wind farms to halt production while relying on more expensive power sources located closer to consumers.
Understanding National Grid's Revenue Model
National Grid generates revenue by charging a transmission fee included in consumer electricity bills, which accounts for the movement of electricity throughout the country. Their earnings are also derived from the distribution of electricity at lower voltages to homes and businesses. The UK regulator, Ofgem, restricts how much money National Grid can earn, but upcoming regulatory cycles may allow for increased returns, especially considering the need for significant investments in infrastructure. Analysts express optimism about the company's dividend stability, noting that while there are concerns about the recently announced rights issue diluting shares, the long-term investment strategy appears promising.
Investment Trust Cost Disclosures
Recent regulatory changes in the UK have relaxed the stringent cost disclosure requirements for investment trusts, allowing them to present ongoing charges as zero. This shift aims to alleviate concerns from advocates who argue that the previous obligations led to misinterpretation of actual costs associated with investment trusts. However, retail platforms and investment advocates remain cautious, warning that misleading representations may confuse investors about the true costs involved. The Association of Investment Companies recommends that trusts provide additional information to clarify costs to maintain investor awareness in light of these changes.
Performance of Virtu Motors Amid Industry Challenges
Virtu Motors has shown resilience within a struggling automotive market, reporting steady revenue growth despite broader challenges faced by car manufacturers. The company has focused on seizing growth opportunities in the fluctuating market, particularly in the used car sector, which remains strong despite concerns over stock shortages and general consumer confidence. There's a visible split in performance between the new and used car markets, with Virtu steadily gaining market share. Their investment in digital services and after-sales processes is expected to bolster profitability and enhance customer convenience, indicating a strategic approach to ride out market volatility.
We begin with National Grid’s (NG) transformation plans. Jemma Slingo and Alex Newman weigh in on whether it should now be considered a growth rather than income stock, its US business and more.
It’s then onto car dealership Vertu (VTU). Mark Robinson runs through the driving factors behind Vertu’s performance, the business’ valuation and its prospects in a struggling market.
Last up, Holly McKechnie dives into the knotty issue of investment trust costs. In September HM Treasury announced it was replacing a regime in place since Britain’s time in the EU, and angst has since swelled. Find out what the Isa and pension providers are saying and what the change actually means.
Timestamps
1:46 National Grid
14:52 Vertu
26:06 Investment trust costs
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