UKPN Sale at GBP 15 Billion Would Lift CKI’s Valuation Sharply

CK Infrastructure Holdings is seeing muted positive reaction to news that it may be selling its 40% stake in UK Power Networks, or UKPN, for a potentially hefty gain. CKI has confirmed that the group 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 more than double what we reflect in our valuation of CKI, is accurate. Given the recent transaction values, a pricing 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 CKI is trading below our fair value estimate of HKD 60 per share as it implies possibly higher valuations for its other U.K. assets.