Key Morningstar Metrics for National Grid
- : GBX 1,440Fair Value Estimate
- : ★★★★Morningstar Rating
- : NarrowMorningstar Economic Moat Rating
- : LowMorningstar Uncertainty Rating
What We Thought of National Grid’s Earnings
National Grid’s NG. fiscal 2026 underlying earnings per share increased 6% to GBX 78, in line with our expectations and company-compiled consensus. Management confirmed its guidance for 13%-15% EPS growth in 2027 and an 8%-10% compound annual growth rate through 2031.
Why it matters: The regulated asset base grew 12%, thanks to a 21% increase in investments to £11.6 billion, ahead of the £11 billion guidance. Net debt stood at £44.2 billion at the end of March, up £3.5 billion year over year and above the guided £1.5 billion increase. Operating cash flows and £3 billion of disposals were exceeded by investments and dividend payments.
- Retained cash flow/net debt deteriorated from 9.8% to 9.3%, still comfortably above the 7% threshold of Moody’s Baa2 rating. On the other hand, regulatory gearing was stable at 61%.
- The firm expects a 10% increase in investments in 2027 to £13 billion and a £6 billion increase in net debt in 2027. Gearing will increase to around 64%. Still, we reckon that RCF/net debt will remain well above 7% thanks to a material earnings increase, implying a limited likelihood of a rights issue that the bears expect.
The bottom line: We confirm our GBX 1,440/USD 96.50 fair value estimate for narrow-moat National Grid. 2027 guidance implies a P/E of 14, which is cheap for a regulatory utility compounder.
- The current valuation discounts higher interest rates but doesn’t fully reflect the March 2 guidance upgrade and the positive impact of higher inflation on the asset base.
- National Grid will pay a GBX 48.49 dividend on 2026 earnings, up 3.8% from last year and implying a 3.8% yield.
Key stats: Return on equity increased 80 basis points year on year to 9.8%. The UK transmission business was the key growth driver with 18% EBIT growth, supported by a 16% increase in regulated asset value and an 8.2% return on equity versus 7.8% last year, thanks to an operational outperformance of 1%.
