Pair Trade: National Grid - Short SSE Wednesday, October 15th 2012Company Description Investment Case National Grid has been underperforming since Ofgem Initial Proposals last July for the 2013/14 – 2020/21 reviews for the RIIO Electricity Transmission, Gas Transmission and Gas Distribution. The proposals were tougher than expected. The company published its detailed response to Ofgem Initial Proposals. It highlights many areas where National Grid believes there’s some score for an improvement. The Final Proposals shouldMarket Price Data be announced next December. Probably, the company will not getNational Grid (NG/ LN) respite in all the points raised, but it could be enough to furtherLast Price (GBP) 693.50 derisk its balance sheet and dividend policy.YTD Change 10.96%Mkt Cap (GBP bn) 25.230 Main risks are a tougher than expected regulatory review on RIIO andSSE (SSE LN) on settlements from its renegotiation of US rate plans.Last Price (GBP) 1425.00 SSE is a well-managed company. SSE is the first of the suppliers toYTD Change 10.38% announce a tariff increase for this year, which could point to aMkt Cap (GPB bn) 13.651 weaker financial position (last month it was put on negative outlookSource: Bloomberg by S&P) and stronger competitors. Over the next months, the company will need its major wind farm construction projects toAnalysts Recommendations: commission on time (renewable energy subsidies could be cut), energy prices to show a positive evolution and emission costs to remain low. The National Grid / SSE currently trades at a ratio of 0.4867. We’ll define as our targets 0.4996 and 0.5100. 0.4773 will be our stop-loss.Source: Bloomberg Technical CommentMarket Multiples P/E EPS DY Net 2014 2011/14 2014 Debt/ CAGR EBITDA Est. Est. Est. Est. 13National Grid 12.68 -2.21% 5.97% 4.14SSE 11.81 3.76% 6.16% 3.17Source: BloombergNext Report DateNational Grid Q3 Results November 15thSSE Q3 Results November 14thSource: Bloombergwww.fincor.ptwww.facebook.com/FincorAnnouncement: Fincor—Sociedade Corretora, S.A. provides services of reception, execution, and transmission of orders. The contents men-tioned in this document do not constitute (nor should they be interpreted as to form) any kind of counselling, or investment recommendation, or arecord of our trading prices, or an offer or solicitation to trade in any financial instrument. Fincor—Sociedade Corretora, S.A. Will not accept anyresponsibility resulting from any use referring to said content or about any resulting effect that could have occurred.