A fresh chance to get an energy boost

Mary Fagan looks at the prospects for investors in the power generators

Investors who put money into the two electricity generators, National Power and PowerGen, when they were sold to the public in March 1991 have done very well, even by the standards of the other privatisation shares sold by the Government.

Now investors have a second chance to put money into the companies. The Government is selling its remaining 40 per cent shareholding in the two companies. The share offer will be formally announced next month and close early in March.

Investors will do well to give the offer a close look. Since the companies were floated, shareholders have enjoyed both strong dividend growth and a substantial capital appreciation. While the scale of the returns is unlikely to be repeated this time around, the companies remain a potentially attractive home for savings money.

The extent of public interest in the sale of the Government's stake in National Power and PowerGen will become clearer on Monday week with the launch of the pathfinder prospectus and the disclosure of how many people have registered with share shops.

The incentives for private investors, announced earlier this week, will only be available to those who have registered and apply through the share shops. Unlike the final sale of BT shares in 1993, that rule also applies to existing shareholders. They will not automatically be registered.

The incentives are discounts worth up to £200 on the price paid by professional investment institutions. The discount - 25p per share on the first 800 shares allocated - represents roughly a 5 per cent discount on the share price of National Power and PowerGen. The full discount will only be available to those who hang on to their shares.

It will be divided into 10p off the second instalment and 15p off the third and is separate from the discount on the first instalment, which all investors in the UK public offer will receive. Each instalment will be payable in a different tax year.

Private investors can choose bonus shares instead of the discount, receiving one share for every 15 in the first 1,200 allocated and held until 31 March 1998. The shape of the overall package is broadly similar to that offered in BT3.

With the companies established and their share prices known, this sale is not likely to deliver the bonanza of the original electricity privatisation, but City analysts are still bullish about the companies' prospects.

National Power and PowerGen are expected to continue delivering a high yield on the partly paid shares. They are widely regarded as strong cash generators and capable of delivering strong dividend growth.

One analyst said: "There will be no immediate fireworks but you will certainly make more than putting your money in the building society. This offers huge financial strength and high dividend growth in a rather uncertain market."

The companies face regulatory uncertainty. The watchdog, Offer, has demanded that they sell power plants to increase competition in the marketplace. Should they refuse to do so - and there has been little progress to date - they may end up in the arms ofthe Monopolies and Mergers Commission.

There has also been concern over prices in the wholesale electricity market and the powerful position that the generators hold. Those problems, and the political risk that a Labour government might impose a windfall tax on the utilities, are real but have done little to dampen the enthusiasm of many analysts who watch the industry.

Private investors will buy a package of shares - three of National Power for every two PowerGen - although the partly paid shares will trade separately. The minimum first instalment is expected to be between £300 and £500.

Monday week will also see the announcement of the size of the first and second instalments paid by private individuals. The final price - and the total discount available to the public - will be decided by an international bidding process among institutions in advance of the sale at the beginning of March.