A FTSE 100 company with net debt of £20 billion – nearly £4 billion higher than its stock market value – would normally get short shrift from prospective shareholders. Fortunately for Steven Holliday, chief executive of National Grid, his company sits in a sector where high borrowings are the norm, and whose defensive traits are now more prized than at any time since the utility privatisations of the 1980s.

Yesterday’s first-half numbers from the electricity and gas network operator did nothing to lessen the allure. The figures were superficially skewed by last year’s $11 billion acquisition of KeySpan, the US gas distributor, which makes most of its profits in the winter months, and has tilted the balance of National Grid’s earnings towards the second half of its financial year.

Still, operating profits were up by 4 per cent to £1.08 billion, cashflow of £934 million was strong and the interim dividend was raised by a hefty 8 per cent, the pace at which Mr Holliday has pledged to grow the payout for the next four years.

The company, which draws 45 per cent of its sales from the US, is also a modest beneficiary of a stronger US dollar. The effect is partly offset by higher interest costs on its dollar-denominated debt, but should the exchange rate stay where it is, current-year earnings will get a £25 million boost.

The company concedes that it has seen signs of reduced power demand from industrial markets – a combination of economic slowdown and energy conservation measures – but since the recent revision of regulatory price controls, its UK revenues are no longer tied to volumes. In the US, it has felt an expected rise in bad debts in its household supply business, but the hit – about £7 million – is modest in the context of a £1 billion bottom line.

That leaves two concerns. First, that moribund debt markets will make it more difficult and expensive for National Grid to raise the funds it requires to honour its £3 billion-a-year capital expenditure commitments. Secondly, it faces an 18-month period in which the prices it charges in nearly all of its US businesses are up for regulatory review. However, the certainty of the company’s cashflows means that it will be among the first entities that banks and capital markets are happy to back. Meanwhile, the diversity of its US operations suggests that regulatory risk is low.

At 680p, the shares sit at a reasonable 14 times earnings but, more compelling, they provide a secure and growing 5.4 per cent dividend yield. Buy.

Halfords

Nearly three decades after Norman Tebbit exhorted the unemployed to get on their bikes, the former MP’s injunction is finding fresh resonance among Britons braced once more for recession. First-half figures yesterday from Halfords revealed cycling as one of the few corners of retail that is defying the downturn. The chain’s like-for-like sales were 1.1 per cent lower overall, but ahead in leisure, the category in which cycling sits.

British Olympic prowess can’t have hurt – Halfords sponsors Nicole Cooke, the Beijing gold medal-winner – but it appears that secular growth in cycling on health and environmental grounds is drawing increased impetus for its cost-saving attractions among straitened commuters.

The broader encouragement was that, despite a faltering top line, Halfords’ bottom line has been bolstered by cost controls and gross margin gains, so that pretax profits were 3 per cent ahead, and still on track to meet full-year forecasts.

Even better, the interim dividend was raised by 5.3 per cent – a phenomenon in itself for its sector. Nor has Halfords’ growth potential dimmed. David Wild, the new chief executive, will accelerate the Eastern European expansion begun by his predecessor (at the expense of a weakened UK), and push Halfords’ presence in children’s and top-end bicycles, where it is underweight. Mr Wild is also trimming overheads and capital expenditure.

Halfords has £174 million of net debt and expects trading to get tougher in the first quarter of 2009. However, at 240½p, or eight times earnings, and yielding 6.3 per cent, the shares are one of retail’s safer rides. Hold.

Young’s

On the face of it, yesterday’s trading update from Young’s is evidence of why investors should steer clear of the pub sector. Although the London-based operator’s first-half figures were perfectly respectable, with underlying profits up 9.4 per cent and adjusted earnings per share 0.2 per cent better, the past few weeks have been tough. In September and October, like-for-like sales in its managed pub division fell by 3.3 per cent, against a 1.6 per cent first-half rise.

However, if one looks beyond this recent lurch into negative territory, it is clear that Young’s, which showed perfect timing in selling its Wandsworth brewery just before the market collapsed, remains a solid, reliable company. It has invested some of the £69 million sale proceeds in buying pubs of good quality. Although the prices have not been cheap, the resilience of top-end London pub valuations provides comfort on the inherent worth of the group’s existing estate of 122 managed and 100 tenanted pubs.

Stephen Goodyear, chief executive, did not try to put a gloss on trading since September’s financial meltdown, conceding that he did not expect any improvement for at least a year. However, this is a company that has traded for 175 years and that is, crucially, conservatively financed. Its 2 per cent rise in interim dividend indicates a vote of confidence by the board. Although things are likely to get worse before they get better, Young’s, at 357½p, or 14 times earnings, remains a long-term hold.

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