Electricity and gas supplier in union war

By Graeme Dickson
Updated: 12:00 EDT, 8 December 2010

Keep an eye on electricity and gas supplier National Grid (NG.) after the stock recorded a dead-cross a few days ago:

The shares seem to have fallen as the time comes for the unions to vote on what type of industrial action to take, after members rejected a 7.2 per cent pay rise towards its staff, stretched over three years.

The main gripe about the rise seems to be about not matching projected inflation over the forthcoming years.

Unions will vote whether to work-to-rule or refuse overtime and this will come at a time when its employers need the staff at a most critical period, especially if the electricity infrastructure shuts down.

As for National Grid and the share price, the City will not be impressed if the board succumb to union pressure by paying what its members want.

At the same time, if the board sticks to its ground, then the company could face potential loss of profits and additional costs associated with a possible power outage.

Not an ideal situation in the short-term. Long term this stock looks good as it is forecast to pays a 6.2 per cent dividend yield: as such I would try not to get too greedy on a target price - 520p looks reasonable price to initially aim for and 500p if we get lucky.

Cut the position if its trades above 568p.

Update

Reed Elsevier – suggested to sell at 508p last week, the shares have moved up with the market, setting yesterday at 519p. Nothing to panic about but if it closes above 540p I would be inclined to exit any short position.

G4S (GFS) – suggested to sell at 241.3p, the shares dropped to 238.1p yesterday. The shares appear to be heading south towards the 200 week exponential moving average of 223p, a point which perhaps one would lock in half their profits.

Bovis (BVS) – suggested as a sell at 330p, the stock hit the stop of 359p last Friday and should have been closed.

William Hill (WM) – suggested as a sell at 164p, the stock closed yesterday a above the stop of 166p and therefore should be closed.

Punch Taverns (PUB) – mentioned as a sell at 69.05p, the stock went through the stop of 66p and should have been closed out at 67p for a small profit.

Avis (AVE)– suggested as a sell at 210p, the stock closed yesterday at 210p. Keep the stop based on a close above 212p.

Jardine Lloyd Thompson (JLT) – tipped as a sell at 566p, the stock closed yesterday at 602.5p. Keep the position but be aware of the 720p a share bid rumours circulating the market. A close above 605p will be a definite signal to exit the position.

Barclays (BARC) – suggested to sell at 309p, the stock closed yesterday at 262.6p. Lower the stop to 276p to ensure profits.

The writer does not hold any shares or derivatives in the above mentioned companies. The material for this report comes from Alpha Terminal.