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1. Company Snapshot

1.a. Company Description

National Grid plc transmits and distributes electricity and gas.The company operates through UK Electricity Transmission, UK Electricity Distribution, UK Electricity System Operator, New England, and New York segments.The UK Electricity Transmission segment provides electricity transmission and construction work services in England and Wales.


The UK Electricity Distribution segment offers electricity distribution services in Midlands, and South West of England and South Wales.The UK Electricity System Operator segment provides balancing services for supply and demand of electricity on Great Britain's electricity transmission system; and acts as an agent on behalf of transmission operators.The New England segment offers electricity and gas distribution, and electricity transmission services in New England.


The New York segment provides electricity and gas distribution, and electricity transmission services in New York.It also engages in the provision of transmission services through electricity interconnectors and LNG importation at the Isle of Grain; sale of renewables projects; and leasing and sale of commercial property, as well as insurance activities in the United Kingdom.The company was founded in 1990 and is headquartered in London, the United Kingdom.

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1.b. Last Insights on NG

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1.c. Company Highlights

2. National Grid's Strong H1 Performance Driven by Increased Regulatory Revenues

National Grid reported a robust financial performance in the first half of the year, with underlying operating profit increasing by 13% to GBP 2.3 billion, driven by higher regulatory revenues in both the U.K. and U.S. electricity transmission businesses. Underlying earnings per share (EPS) grew by 6% to 29.8p, beating analyst estimates of 0.2809 with an actual EPS of 0.306. The company's investment in capital projects remained strong, with a record GBP 5.1 billion invested in the first half, up 12% year-over-year.

Publication Date: Nov -07

📋 Highlights

Operational Highlights

The company's operational performance was also impressive, with significant investments in the U.K. and U.S. electricity transmission businesses. The U.K. electricity transmission business saw a 31% increase in capital investment to GBP 1.7 billion, while U.S. capital investment reached GBP 1.6 billion, up 5%. The company's efforts to support load growth in the U.K., including facilitating connections for data centers and AI infrastructure, are expected to drive future growth.

Regulatory Support and Investment Plans

National Grid's GBP 60 billion capital investment plan is well-supported by regulatory frameworks, with around 75% of the 5-year investment plan approved in the U.S. The company's CEO, John Pettigrew, expressed confidence in the company's strong position regarding infrastructure and economic growth in the UK, emphasizing the importance of stable and predictable fiscal and regulatory frameworks.

Valuation and Outlook

With a P/E Ratio of 19.54 and an EV/EBITDA ratio of 14.37, National Grid's valuation appears reasonable given its strong financial performance and growth prospects. The company's Dividend Yield of 4.05% is also attractive, providing a relatively stable source of return for investors. Analysts estimate next year's revenue growth at -5.4%, but National Grid's guidance for FY '26 has been modestly upgraded due to stronger operating performance across regulated businesses.

Growth Opportunities

National Grid is well-positioned to capitalize on growth opportunities, including increased demand for data centers and AI infrastructure. The company's RIIO-T3 plans assume a demand growth of around 19 gigawatts, with around 4% growth in demand per annum. The company is also exploring US transmission opportunities, with National Grid Ventures looking at solicitations for competitive transmission.

3. NewsRoom

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AM Best Affirms Credit Ratings of National Grid Insurance USA Ltd

Dec -04

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British energy grid overhaul to pile £100 on to household bills

Dec -04

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Soudah Development and National Grid Sign SAR 1.3 Billion Agreement to Power Soudah Peaks

Dec -03

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National Grid Launches AI-Powered Wildfire Risk Initiative with Rhizome

Dec -02

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Is It Time to Reassess National Grid After Its 19.4% Share Price Jump in 2025?

Nov -29

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ECP Successfully Closes Acquisition of Grain LNG with Centrica plc

Nov -28

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Sector Update: Energy Stocks Retreat Late Afternoon

Nov -24

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The power companies cashing in on Miliband’s net zero blitz

Nov -24

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4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (4.60%)

6. Segments

New York

Expected Growth: 4.4%

The stable regulatory environment and steady demand for electricity and gas in New York State support a growth rate slightly below the global average. The segment's maturity limits high growth, but its essential services ensure steady revenue.

New England

Expected Growth: 4.5%

The New England segment is expected to grow at a rate close to the global average due to its stable regulatory environment and steady demand. The region's focus on energy efficiency and renewable energy may influence growth, but the segment's core utility business remains stable.

National Grid Ventures

Expected Growth: 6.0%

National Grid Ventures is expected to grow above the global average due to its focus on innovative energy-related businesses and technologies. The segment's investment in emerging areas can drive higher growth, although it may also involve higher risks.

UK Electricity System Operator

Expected Growth: 4.2%

The UK Electricity System Operator is expected to grow at a rate slightly below the global average. The segment's stability is influenced by the UK's energy policies and regulatory framework. While the segment is critical to the UK's energy system, its growth may be limited by its regulated nature.

UK Electricity Transmission

Expected Growth: 4.3%

The UK Electricity Transmission segment is expected to grow at a rate slightly below the global average. The segment's stability is driven by the UK's energy demand and regulatory framework. The need for infrastructure investment supports growth, but the regulated nature of the business limits the growth rate.

UK Electricity Distribution

Expected Growth: 4.4%

The UK Electricity Distribution segment is expected to grow at a rate slightly below the global average. The segment's stable and regulated nature, combined with steady energy demand, supports a moderate growth rate. Investment in the distribution network to meet energy efficiency and renewable energy targets may also contribute to growth.

Others

Expected Growth: 4.6%

The 'Others' segment is assumed to grow at the global average rate, as it encompasses a variety of businesses with different growth characteristics. This rate reflects a balanced view of the diverse activities within this segment.

Sales between Segments

Expected Growth: None%

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7. Detailed Products

Electricity Distribution

National Grid plc distributes electricity to homes and businesses in the UK and US, operating and maintaining the distribution networks to ensure reliable and efficient supply of electricity.

Gas Distribution

National Grid plc distributes gas to homes and businesses in the UK and US, operating and maintaining the distribution networks to ensure reliable and efficient supply of gas.

Electricity Transmission

National Grid plc transmits electricity across the UK and US, operating and maintaining the high-voltage transmission networks to ensure reliable and efficient supply of electricity.

Gas Transmission

National Grid plc transmits gas across the UK and US, operating and maintaining the high-pressure transmission networks to ensure reliable and efficient supply of gas.

Smart Energy Solutions

National Grid plc offers smart energy solutions, including smart meters, energy efficiency programs, and innovative technologies to help customers manage their energy usage.

Renewable Energy

National Grid plc invests in and operates renewable energy sources, such as wind farms and solar panels, to generate clean energy and reduce carbon emissions.

8. National Grid plc's Porter Forces

Forces Ranking

Threat Of Substitutes

National Grid plc operates in the utility industry, providing essential services such as electricity and gas transmission and distribution. The threat of substitutes is low as there are limited alternatives to the services provided by National Grid, and switching to alternative sources of energy or transmission methods may be difficult and costly for customers.

Bargaining Power Of Customers

National Grid plc's customers are primarily residential and commercial users of electricity and gas. These customers have limited bargaining power as they are not concentrated, and National Grid has a large customer base. Additionally, the services provided by National Grid are essential, and customers have limited ability to negotiate prices or terms.

Bargaining Power Of Suppliers

National Grid plc's suppliers include companies that provide equipment, materials, and services necessary for the transmission and distribution of electricity and gas. While National Grid has a large and diverse supplier base, some suppliers may have significant bargaining power due to their size or the uniqueness of their products or services.

Threat Of New Entrants

The threat of new entrants to National Grid plc's markets is low due to the high barriers to entry. The utility industry is heavily regulated, and new entrants would need to comply with strict safety, environmental, and financial regulations. Additionally, the capital requirements for establishing a new transmission or distribution network are significant.

Intensity Of Rivalry

The intensity of rivalry in the utility industry is medium. While there are a few large players in the industry, including National Grid plc, the market is not highly competitive as the companies operate in different regions and have regulated monopolies in their respective areas. However, there is some competition for new business and for large commercial and industrial customers.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 61.18%
Debt Cost 5.03%
Equity Weight 38.82%
Equity Cost 6.09%
WACC 5.44%
Leverage 157.61%

11. Quality Control: National Grid plc passed 4 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

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A-Score: 6.1/10

Value: 5.5

Growth: 2.7

Quality: 3.7

Yield: 8.1

Momentum: 6.5

Volatility: 10.0

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A-Score: 5.5/10

Value: 5.0

Growth: 3.8

Quality: 4.6

Yield: 6.0

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

11.34$

Current Price

11.35$

Potential

-0.00%

Expected Cash-Flows