UKPN Sale at GBP 15 Billion Could Be Significant Benefit To Power Assets Shareholders

Power Assets Holdings, or PAH, has seen limited reaction to news that 40% owned UK Power Networks, or UKPN, may be sold at a significant gain. Besides the drag from the Russia-Ukraine war, there is uncertainty over whether the sale could leave a profit void. The group has confirmed that it is in discussions with potential bidders but has not indicated whether the Bloomberg report that the sale could value UKPN at GBP 15 billion, which is almost double what we reflect in our valuation of PAH, is accurate. Given the recent transaction values, a price that is at least 1.6 times the regulated asset value, or RAV, would not be surprising, but GBP 15 billion would appear to be well above this benchmark. The news, nonetheless, supports our view that PAH is trading below our fair value estimate of HKD 53 per share as it implies possibly higher valuations for its other U.K. assets.