National Grid Ordinary 11,17/43p (NG.)

Company overview

The Group's core operation is transmitting and distributing energy in both the UK and US. It operates an electricity transmission network of approximately 14,000 miles in length, along with a gas transportation system in the UK. The group’s US interests serve around 3.3 million customers in the region of New England and New York State. It is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index.

HL Comment (31 January 2012)

The group's third quarter update saw management reconfirming its positive outlook for 2011/12. The group remains on track to achieve its efficiency goals for its US businesses this year. Furthermore, its UK regulated businesses all reached significant milestones in the development of new business plans to run from April 2013. In addition, and with the company's dividend forming an important part of shareholder returns, the board noted that "under our new one year dividend policy, we plan to deliver nominal dividend growth of 4% for the 2012/13 financial year, an increase which would represent real growth in the dividend based on forecast inflation of around 3%".

Negative Points:

• As of the half year results, a key measure of efficiency for the group’s UK business had declined over the last year. Return on capital employed (RoCE) had fallen to 8.5% in 2010/2011, down from 9.6% in 2009/2010 - RoCE compares earnings with capital invested in the business.
• At the half year results marker, regulated controllable costs across its businesses increased by £16m (2%) on a constant currency basis compared to the same period last year, reflecting inflationary pressures on salaries and other costs and some increased recruitment in its UK transmission business.
• The financial performance of National Grid's UK regulated businesses is highly dependent on the outcome of regulatory reviews, which, to an extent, are outside management control.
• National Grid has currency exposure, in particular to the US dollar.

Positive Points:

• Accompanying management comments noted that "our businesses continued to make good progress toward our priorities for the year and have delivered further solid operational and financial performance".
• The dividend policy for this year has been clarified. In addition, management expects to announce a longer term dividend policy in 2013 once it has clarity on the key regulatory outcomes and the resulting medium term growth and investment needs.
• National Grid has a number of efficiency programmes underway in different parts of its business to ensure the cost effective delivery of its services and investments.

Consensus:

On balance, market consensus indicates a strong hold.

All yield figures are variable and not guaranteed.

Fundamental Data

Values are quoted in the stock's local currency: British pound.

Year Ending	Revenue (m)	Profit Before Tax (m)	EPS (p)	P/E Ratio	PEG	EPS Growth (%)	Total Dividend	Dividend Yield
31-03-2011	14,343.00	2,624.00	63.90	11.50	n/a	(6.00)	36.37	6.10
31-03-2010	14,007.00	2,193.00	53.83	10.50	1.00	10.00	38.49	6.70
31-03-2009	15,624.00	1,394.00	36.90	9.60	0.60	17.00	35.64	7.40
31-03-2008	11,423.00	2,182.00	54.22	14.50	0.60	25.00	29.67	4.80
31-03-2007	8,695.00	1,751.00	43.25	20.80	n/a	(16.00)	25.81	3.60