National Grid Reports Performance Aligned with Expectations, Citi Lowers Rating

In its pre-close update for the six months ending September 30, National Grid reported that the group’s performance aligns with expectations, with underlying earnings per share expected to be weighted towards the second half of the year.

Citi Research has downgraded NG shares to a Neutral rating, adjusting the price target to 1,050p from 985p. They expressed readiness to re-enter the shares if any unjustified sell-off occurs, citing strong fundamentals.

For its UK operations, which include Electricity Transmission and Electricity Distribution, National Grid anticipates that operating profits will be evenly distributed throughout the year. Additionally, the company highlighted a projected £70 million boost from the Electricity System Operator (ESO) business, resulting from accounting adjustments related to its classification as held-for-sale until the end of September.

Citi noted that, on a relative basis, they see better value in other regulated entities in the sector, such as E.On or Redeia, both of which are rated as Buy.

In the US regulated segment, including New York operations, National Grid expects operating profits to be heavier in the second half of the year, following historical patterns. This indicates a return to typical performance after the first half of last year was affected by an environmental provision charge.

For National Grid Ventures, the company foresees a 40:60 split in operating profit between the first and second halves of the fiscal year, while interest costs are expected to be more evenly distributed throughout the year.

Additionally, the weighted average number of shares for the first half is recorded at 4,526 million, reflecting the impact of a recent rights issue on net debt and issued share capital. Analysts at Jefferies commented that they view this as an in-line update, assuming the long-term outlook remains consistent.