National Grid – Taking Steps Forward And Back In Full Year Results

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National Grid plc (LON:NG) full year results show underlying operating profits rising by 10%, held back by currency movements. Earnings per share rose by 7% at the underlying level to stand at 69.7p and the group raised its full year dividend by 8.8% to 55.44p per share.

Chief Executive John Pettigrew described the last year as one of significant progress during a period of strategic change. National Grid completed its pivot toward the electricity sector, exiting from most of its interests in UK gas distribution assets.

National Grid sees considerable opportunities for future growth as they build out the infrastructure required to connect clean generation projects, from wind and solar to new nuclear to the nation’s transmission backbone.

£236m of operating efficiencies were created in the year, mainly in the US operations, helping to offset the cost pressures National Grid faced in its day-to-day activities. Having made a substantial investment into UK electricity distribution the previous year, National Grid raised funds this year through selling NECO, a US electricity operator for £3.1bn and raised further cash through selling a 60% stake in UK gas transmission at the beginning of the year.

The remainder of the gas transmission is classified as “held for sale” with the buyer holding an option to acquire the remaining stake shortly.

National Grid’s Earnings

Steve Clayton, head of equity funds, Hargreaves Lansdown:

“National Grid is well positioned to play a major role in the UK’s energy transition. New generation assets must be hooked up to the grid as older, carbon-heavy generation is retired. This means major expense for National Grid, upon which the regulator will allow additional revenues.

This will drive growth for years to come, with National Grid estimating that assets and earnings will grow by an average of 9% and 7% respectively during the current price control period, stretching out to 2026.

That supports a dividend policy which aims to maintain the real value of the dividend, making National Grid an interesting inflation hedge in the current volatile economic conditions. The shares offer a yield of around 4.8% in the current year.

The figures this morning look to have beaten City estimates by a touch. But there is a niggle in the statement this morning. The impact of changes in the government’s capital allowance regime will impact next year’s reported earnings.

National Grid had previously warned that this was coming, but the consensus had been expecting the change to limit the growth rate of earnings per share to modest levels this year.

In the event National Grid is now guiding toward a modest decline, followed by a return to expansion from FY 2025. So far, the market appears to be taking the news in its stride, with the shares dipping by less than 1% at the opening.”