Stable returns and improving cash flow
Jersey Electricity (LON:JLEC) is delivering attractive and stable returns for its shareholders and secure, affordable, low-carbon electricity for its customers. We forecast a continuation of the favourable returns and an improving cash flow profile, which should underpin attractive dividend growth. At its current share price JEL is trading at a significant discount to both its sum-of-the-parts (SOTP) and peer group valuation multiples.
Financial stability
FY16 results showed that JEL is earning a stable return, which remunerates it adequately for its investment (operating profits/regulatory asset base [RAB]). We believe the company will be able to sustain returns at a satisfactory level, but that after significant investment in the network in recent years, capex will fall to c £15m in FY17, with a consequent improvement in cash flow. The improved cash flow will reduce the already modest level of gearing and help underpin DPS growth. We forecast 5% pa growth in the DPS for FY17 and FY18, although JEL possesses the financial capability to exceed our forecasts.
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