Is the UK’s most expensive share worth it?
Posted on February 16, 2009 by Richard Beddard
Filed Under Companies |
Partial nationalisation is good for shareholders, but not that good
Despite the harrowing price cuts in bank shares under threat of nationalisation, there’s evidence that part-nationalisation works from the States of Jersey, which owns 62% of Jersey Electricity (JEL).
Jersey Electricity has a monopoly on electricity supplied to the island from Europe through two submarine cables. That electricity powers, amongst other things, the offshore financial services industry for which Jersey is so famous, and its marinas, houses and shops, including electrical retailers owned by Jersey Electricity.
Since the island’s prosperity, in part, hinges on its power supply, it’s logical that the States of Jersey use its voting power (its shares have 5 times the votes of each ‘A’ share traded on the stock exchange) to ensure the energy supply is robust, and cheap – two of the company’s objectives.
Yet the island’s government also receives a dividend from Jersey Energy, which gives it an incentive to embrace the profit motive. Judging by the slow but steady increase in Jersey Energy’s share price and the dividend, which yields 3%, the company seems to have struck a successful compromise between the needs of the islands and investors.
Jersey Energy scores eight out of nine for financial strength according to Piotroski’s F_score, and it fails to score 9 by a whisker. It could be the ultimate safety-first investment offering a dependable reward for very little risk.
The only thing holding me back is the price, both in absolute terms and relative to earnings.
At £60, Jersey Energy is the most costly stock listed in the UK and that coupled with the small number of shares in public hands makes it so illiquid even management finds it difficult to share in the company’s profits.
In terms of value, it’s not cheap either. Its long-term price earnings ratio is 16, right at the upper limit of my buy-zone, offering an earnings yield of just over 6%. That’s pricey, considering its growth prospects are tied, surely, to Jersey’s, and subject to political interference.
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