Northern Electric PLC

Northern Electric PLC (LON: NTEA) provides electricity distribution and related services to customers across north-eastern England.

Investment Highlights – HOLD at GBX 150.00

• Growth and Liquidity: Northern Electric delivered significant revenue growth in H1 FY21 and held £75.0 million under revolving credit facility and £10.3 million in cash as liquidity, to sustain strong profitability and pursue market opportunities.
• Smart Meters: The provision of smart meters helped in securing contracts with energy suppliers and can create further growth avenues.
• Technical Indicator: From a technical standpoint, the current market price is trading above the 20-day EMA (~148.00), reflecting a bullish price momentum.
• Better Profitability: From H1 FY18 to H1 FY21, NTEA has reported higher gross margin, EBITDA margin and net margin than the industry median of 56.5%, 23.2%, and 10.5%, respectively.

Key Risks

• Demand Slump: The electricity demand slump from the UK business customers and subdued residential boiler installations can affect profitability.
• Macroeconomic and Regulatory Risk: The UK government has decided to review green retail electricity tariffs, which can impact the trading of energy entities. Moreover, the continuous apprehensions regarding inflation, interest rate increase, rising input costs, resurgence in Covid-19 cases, and regulatory delays can keep the equity market volatility in the short-term.

H1 FY21 Financial Highlights (for the six-month period ended 30 June 2021, as on 17 September 2021)

(Source: Company Website)

• Top-line Growth: On the back of higher distribution revenue with increased tariffs and growth in engineering contracting revenues, the Group reported £16.7 million in H1 FY21 versus H1 FY20.
• Profit Decline: During H1 FY21, NTEA reported a decline of £18.6 million in profit after tax from H1 FY20 due to higher operating expenses and change in tax legislation.
• Liquidity: As on 30 June 2021, the Company held £10.3 million in cash and cash equivalents, alongside revolving credit facility provided by Lloyds Bank PLC, National Westminster Bank PLC, and Santander UK PLC.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Conclusion

NTEA demonstrated business resilience in H1 FY21, despite tough market conditions. Moreover, the higher engineering contracting revenues within IUS division and increased distribution led to a top-line growth. Moreover, higher operating cash inflows supported higher net capital expenditure and increased financing undertaken in H1 FY21. It failed to recommend any dividend; however, retained a decent liquidity to pursue further market opportunities. The stock made a 52-week high and low of GBX 176.00.00 and GBX 144.00, respectively.

Based on the revenue growth, oversold technical stance, and decent liquidity, we have given a “HOLD” recommendation on Northern Electric PLC at the closing price of GBX 150.00 (as on 27 October 2021), while we look forward to taking fresh positions once we have clear financial guidance.  

*All forecasted figures and Peer Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

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