Analysts Review Utility Provider Results

National Grid and SSE reported solid results this week; Morningstar analysts dig into the numbers to see what it means for shareholders 

Morningstar Equity Analysts 12 November, 2015 | 3:43PM
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National Grid

We are reaffirming our £8 per share fair value estimates for National Grid (NG.) after the firm reported earning 28.4p per share in the first half of fiscal 2016 and announced plans to sell its UK gas distribution business. Management also reaffirmed its goal to increase the dividend at least in line with inflation and raised the interim dividend 2%.

Given the rich premiums paid for gas distribution utilities in the United States recently, it is possible a sale would lead us to raise our fair value estimate. However, gas distribution is a relatively small part of National Grid, so the impact would probably be minimal. We agree with management that a sale would free up capital to deploy to its faster-growing transmission business.

Management guided toward the lower end of its £16 billion-20 billion eight-year investment plan and 6% asset growth based on recent changes in UK energy policy. National Grid expects new interconnections during the eight-year period through fiscal 2021 to be less than half what it expected in 2013. Some of that forgone investment could be redirected to make the grid more efficient rather than larger. We continue to assume National Grid invests £2 billion annually in the UK through 2019.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
National Grid PLC1,002.40 GBP0.00Rating
SSE PLC1,607.50 GBP0.00Rating

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Morningstar Equity Analysts  Morningstar stock and fund analysts cover 2,000 mutual funds, 2,100 equities, and 300 exchange-traded funds.