One Utilities Stock to Punt on - Northern Electric plc

Northern Electric plc

Northern Electric plc (LON: NTEA) is an FTSE main market listed company engaged in electricity distribution and related services.

Investment Rationale for Valuation – Speculative Buy at GBX 135.50

• Dividend Payment: The group has announced a dividend of 4.0305 pence (net) per Preference Share for the period six months to 31 March 2022. The amount is payable on 31 March 2022 to holders of Preference Shares on the register as at 04 March 2022.
• High Revenues: The company posted higher revenues during the six months ended 30 June 2021, but the bottom line was impacted by a change in tax legislation and higher operating expenses. The profit after tax was at £25.2 million during the period.
• Access to Funding: The Group had access to £75.0 million under a three-year committed revolving credit facility, which is due to expire in October 2023.
• Better Productivity: From H1 FY18 to H1 FY21, NTEA has reported a higher gross margin, EBITDA margin, and net margin than the industry median of 56.5%, 23.2%, and 10.5%, respectively.
• Technical Indicator: The price of the stock seems to be hovering around the lower Bollinger bands with a 14-day RSI of low levels 20.43, indicating oversold territory.

Key Risks

• Global Risk Concerns: The present macro scenario has been very volatile owing to geopolitical stress and rising crude oil prices. This might further add to the operating owes of the company.
• Regulatory Measures: The bottom-line of the Group is also dependent on favorable tax rules and implications.

Financial Highlights (For the six months ended 30 June 2021, as of 17 September 2021)

(Source: Company Website)

• Rise in Revenue: The company has reported a revenue of £236.4 million in H1FY21, compared to £219.7 million in the prior corresponding period.
• Liquidity: As on 30 June 2021, the Company held £10.3 million in cash and cash equivalents.

One Year Share Price Chart

Conclusion

Based on the decent revenue performance, access to funding, and oversold technical stance, we have given a “Speculative Buy” recommendation on Northern Electric plc at the current market price of GBX 135.50 (as of 24 March 2022, at 10:56 AM GMT).

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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