National Grid
We are reaffirming our £8 per share fair value estimates for 
National Grid (NG.) after the firm reported earning 28.4p per share in the first half of fiscal 2016 and announced plans to sell its UK gas distribution business. Management also reaffirmed its goal to increase the dividend at least in line with inflation and raised the interim dividend 2%.
Given the rich premiums paid for gas distribution utilities in the United States recently, it is possible a sale would lead us to raise our fair value estimate. However, gas distribution is a relatively small part of National Grid, so the impact would probably be minimal. We agree with management that a sale would free up capital to deploy to its faster-growing transmission business.
Management guided toward the lower end of its £16 billion-20 billion eight-year investment plan and 6% asset growth based on recent changes in UK energy policy. National Grid expects new interconnections during the eight-year period through fiscal 2021 to be less than half what it expected in 2013. Some of that forgone investment could be redirected to make the grid more efficient rather than larger. We continue to assume National Grid invests £2 billion annually in the UK through 2019.
A pickup in US investment could offset the slowdown in UK growth. Management guided toward 7% annual US rate base growth. We're hesitant to change our US earnings growth assumptions yet because US regulation remains less constructive and less certain than in the UK. Some of National Grid's US growth relies on single large projects that might or might not go forward.
During the first half of fiscal 2016, operating profit excluding timing and currency adjustments was up 12% from the first half of fiscal 2015. However, most of that increase came from noncore or nonrecurring period-over-period differences. We continue to expect 2%-3% full-year normalised operating profit growth.
SSE
We are maintaining our £15.50 per share fair value estimate for SSE (SSE) shares and narrow moat and stable moat trend ratings after SSE reported adjusted profit before tax of £548.8 million for the first six months of the company's fiscal year beginning March 31, up nearly 50% from the year-ago period.
SSE's recovery came from strong results at the company's wholesale unit, where all three segments (energy portfolio management and electricity generation, gas production, and gas storage) improved significantly. Renewable production was the largest contributor, as higher rainfall and favourable wind conditions drove a 38% increase in renewable production. Similar to the fiscal 2014-15 year, market conditions remain difficult at the units' thermal generators.
The company's other two core operating units, wholesale and networks, also performed well. Networks saw particular strength from continued transmission investments, mostly offset from lower distribution profit as lower revenue was implemented as part of the new RIIO-ED1 plan. Retail saw a rebound in energy supply on the heels of better performance and its industrial and commercial customers.
