The S&P 200 Utilities (INDEXASX: XUJ) is lower today than it has been for over a year. The Ausnet Services Ltd (ASX: AST) share price was one of the few to rise on the ASX yesterday. It was also far and away the largest traded volume in utility sector shares.
With total assets greater than $13 billion, AusNet is Australia's largest transmission network. These are the poles, wires and equipment that moves electricity around at very high voltages. They are the highways on which generated energy flows.
With a price to earnings (P/E) ratio of 25.6 on the ASX today, AusNet is well below the average earnings multiple of all large and mid-cap shares in the utilities sector.
As part of a regulated sector, institutional investors seek out utilities for their predictable earnings. This normally pushes up prices. However, in the current market, AusNet is cheaper than most of the past year.
All utility sector companies operating in regulated markets have an automatic barrier to competition. If you had $10 billion dollars you could not efficiently build a network and compete with them in their geographic market.
Is AusNet well managed?
For the past 3 years, AusNet has consistently delivered a return on capital employed of above 7%. This is an impressive figure, ahead of many of the major mining companies on the Australian share market today. It indicates a highly economical use of capital compared with internal hurdle rates.
The AusNet share price has a 10-year annual compound growth rate of 7% and it has paid a reasonable dividend yield of 5.5% or greater over the past 5 years. If you had invested $10,000 ten years ago, it would be worth almost double that today, on top of a partially franked ~5.5% dividend payment every year.
On the Australian Energy Regulator (AER) benchmark measure of multilateral total factor productivity (MTFP), AusNet is consistently ranked second of the 5 transmission networks in the national energy market. It also recorded a reduction in operating expenditure (OPEX) in the most recent productivity report.
Foolish takeaway
As long as it remains well-managed, I believe AusNet will deliver consistently good returns for many years into the future. AusNet is presently on sale at a historically low P/E multiple.
It is easy to get glassy-eyed over tales of "white whale" companies that increase 100 times over a ten year period. This is always clear in hindsight but few see them when they are right in front of us.
In reality, the large fortunes of the greatest investors of the past century come from placing strong bets on well-managed companies with a large barrier to competition and leaving it there.
A falling share market creates many opportunities for profits but I believe the long-term value presented by companies like AusNet is the real golden ticket to future wealth.
