Regulated energy assets are the pipelines, networks, delivery services systems that get your gas and electricity from the producer to your home. For investors, they can be good sources of stable income. Here are four companies in this industry that may be your home's service provider already.
Following the restructuring changes of last year, Duet Group (ASX: DUE) is now saying it is looking for investment opportunities in more regulated utilities assets. The regulated energy utility infrastructure owner believes that the new structure of having ended the external management arrangements it had through AMP (ASX: AMP) and Macquarie Group (ASX: MQG), and bringing management in house will give it better control of its growth.
It has electricity and gas distribution businesses in Victoria, operates the Dampier Bunbury gas pipeline, the principal pipeline system for Western Australia gas transmission between Browse and Carnarvon basins to Perth customers.
This $2.6 billion company by market capitalisation increased is 2013 net profit after tax from $54.5 million to $82.7 million, but due to costs associated with the management arrangement changes and mark to market derivative and foreign exchange gains, reported net profit after abnormals was $19.5 million.
Another utilities company is natural gas retail distributor Envestra (ASX: ENV), which operates gas networks that are regulated monopolies in key population areas in VIC, South Australia, and Queensland, as well as smaller centres in New South Wales and Northern Territory. It was approached by APA Group (ASX: APA) in July with a merger proposal, but the offer had no strong premium, so it was eventually turned down.
Envestra had a strong 2013 annual result with a record $507 million in total revenue and a 45.8% increase in net profit after tax to $107.8 million. That brought its net profit margin up to 21.2%, and return on equity was 12.8%.
For electricity, there is also Spark Infrastructure (ASX: SKI), an infrastructure fund that has ownership in electrical distribution networks in SA and VIC. It has about the same market capitalisation of Duet Group, $2.1 billion, and has been steadily growing its revenues since 2006. In its 2013 half-year report released in August, it achieved $156 million in total revenue and $76 million in net profit after tax.
Foolish takeaway
These companies may not be household names for many investors, but they are the main suppliers of electricity and gas for many metropolitan areas. As such, they may be regulated monopolies that don't have much competition, which make them attractive investments.
The prices they charge retail consumers are controlled in many cases, but periodic cost hikes are possible since governments want to make sure that they remain viable businesses. For major pipeline infrastructure, again there usually aren't a lot of competing pipelines due to development restrictions and the great cost the infrastructure requires to be built.
