National Grid has announced a change at the top, with current CEO John Pettigrew due to retire on 16 November, and Zoë Yujnovich set to succeed him.
Zoë Yujnovich will join as CEO designate on 1 September before taking the helm following Mr Pettigrew’s retirement, after nearly 10 years in his role.
Yujnovich previously served as an integrated gas and upstream director at Shell, held senior roles at Rio Tinto, and is a recent appointee to the Unilever board.
The shares were broadly flat in early trading.
Our view
National Grid announced its new leader elect, Zoë Yujnovich. The timing of the change at the top was a touch surprising, given the huge investment project that lies ahead. But a respectable CV and plenty of transition time leaves us hopeful that it’ll be a smooth transition.
Investor sentiment has improved since the group announced a major investment plan and £6.8bn equity raise last year. With the energy landscape evolving rapidly, these moves are part of a broader strategy to position itself at the heart of the electric revolution. Infrastructure investment is set to rise sharply to around £60bn over the five years to March 2029 - nearly double the previous five-year total.
Alongside this, the portfolio is being streamlined, with a few non-core assets set for sale. The UK Electricity System Operator was the latest, sold to the government for around £0.6bn in October. The deal frees up cash for reinvestment and allows management to focus more fully on expanding energy infrastructure.
The dividend was also rebased lower to help fund these growth plans and prevent pressure on the balance sheet. We have no concerns about balance sheet health, but this all points towards more of a focus on long-term growth rather than short-term returns, which we’re supportive of.
In return for investing those billions to maintain and upgrade its infrastructure, regulators allow National Grid to earn a reasonable profit, with the potential to earn more if it exceeds targets. That translates into predictable revenues, low borrowing costs, and relatively resilient growth.
The regulatory environment can be a double-edged sword, though, as regulators have the final say over National Grid's profit potential. Tight consumer budgets and a recent rise in energy costs mean many consumers are struggling to pay their bills. That's put pressure on regulators to start slicing into utilities' profits which could potentially hold back future growth.
Given the group's significant investment in this current high-rate environment, we've been keeping a close eye on the cost of funding it all. Finance costs are actually expected to be around £100mn lower this year as a result of lower levels of inflation and net debt.
We commend National Grid’s willingness to pounce on shifting energy trends. The sheer scale of the investment plans brings with it increased execution risk, but should management pull it off, investors will likely be rewarded for their patience. As always though, nothing is guaranteed and there’s likely to be some volatility along the way as the group executes its strategy.
Environmental, social and governance (ESG) risk
The utilities industry is high-risk in terms of ESG. Management of these risks tends to be strong, with European firms outperforming their overseas counterparts. Environmental risks like carbon emissions, resource use and non-carbon emissions and spills tend to be the most significant risks for this industry. Employee health and safety and community relations are also key risks to monitor.
According to Sustainalytics, National Grid’s management of ESG risk is strong.
Its reporting of ESG issues is strong. There is a robust health and safety management system in place that includes regular employee training and system audits, with a strong contractor safety track record. While the group has maintained high levels of reliability on all its networks in the UK and US, there have been instances of outages leading to regulatory investigations and fines.
National Grid key facts
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