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National Grid awaits regulatory determination

The power utility has maintained guidance for the full-year, but its medium-term prospects sit squarely with the regulator
November 12, 2020
  • Attention turns to the upcoming RIIO-2 final determination
  • Underlying operating profit constricted by Covid-19 effects
IC TIP: Hold at 961p

It is difficult to balance the divergent needs of regulators, customers and shareholders at the best of times. Yet National Grid (NG.) has been trying to square the circle amidst a pandemic.

Nevertheless, half year figures contain few surprises, with a 12 per cent decline in underlying operating profit coupled with a 14 per cent fall in underlying EPS. Broker Jefferies estimates that the former measure would have been flat year-on-year save for Covid-19. US debt delinquencies also played a part, along with additional storm-related costs.

UK electricity benefitted from increased investment through the half-year, with the overall capital expenditure outlay broadly in line with the corresponding period once costs linked to renewable acquisitions are taken into consideration. UK gas transmission is moving away from a capital-intensive phase as the Feeder-9 pipeline under the Humber estuary approaches commissioning - the group’s “largest gas project in a decade”.

The outlook for FY2021 remains largely unchanged, with a £400m operating profit hit from the virus, largely attributable to the US, though the utility’s chief financial officer Andy Agg believes that outstanding remittance in the US will be “largely recoverable” beyond the present reporting period. The group still expects a £1bn impact on cash-flows, while net debt is expected to increase by £1.5bn through the remainder of the year, up from £30.1bn at the half-year mark.

National Grid's status as ‘Electricity System Operator’ is under scrutiny, but that constitutes a relatively small part of the overall business. For now, the group expects to see asset growth at the top end of the 5-7 per cent guided range, while EPS consensus stands at 52.61p for March 2021, rising to 58.15p in the following year. Attention is now squarely on the upcoming RIIO-2 final determination in December. Hold.

Last IC view: Hold, 947p, 09 Nov 2020

NATIONAL GRID (NG.)   
ORD PRICE:961pMARKET VALUE:£ 33.8bn
TOUCH:958-962p12-MONTH HIGH:1,074pLOW: 789p
DIVIDEND YIELD:5.1%PE RATIO:23
NET ASSET VALUE:520p*NET DEBT:164%
Half-year to 30 SeptTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20196.2940411.316.57
20206.5472017.117.00
% change+4+78+51+3
Ex-div:26 Nov   
Payment:13 Jan   
*Includes £7.43bn in intangible assets or 211p a share