National Grid’s full-year revenue fell 4% to £17.7bn, driven largely by divestments, including the sale of its Electricity System Operator to the UK government, which offset some strong performance elsewhere.
Underlying operating profit rose 9% to £5.7bn, ignoring exchange rates. Growth was driven by higher allowed revenues in its UK Transmission business.
Free cash outflows rose from £1.9bn to £2.1bn, as an 18% rise in capital investment to a record £11.6bn was largely offset by improved cash generation. Net debt rose 7% to £44.2bn.
For the coming year, underlying earnings per share (EPS) is expected to increase by 13-15% (14.6% expected). Net debt is expected to increase by just over £6bn as investments ramp up.
A final dividend of 32.14p was announced, taking the full-year total to 48.49p, up 3.8%.
The shares rose 1.4% in early trading.
Our view
There were no surprises in National Grid’s full-year results, with performance benefitting from higher allowed revenues in its Transmission business. Investment is ramping up as expected and should help support further growth in the years to come.
Work is well underway for National Grid to plant itself at the heart of the electric revolution. Its infrastructure investment plans were recently upgraded to more than £70bn over the five years to 2031, marking a significant increase over the prior five years. This comes as it looks to support heavy industry to reduce reliance on directly burning fossil fuels through electrification, and growing demand from data centres amid the rise of AI.
This step-up in investment should see the group’s asset base grow by around 10% annually out to 2031. And with National Grid’s revenues linked to the value of its asset base, it’s targeting annual earnings growth of between 8-10% over the period, which looks achievable to us.
Alongside this, the portfolio is being streamlined, with a few non-core assets, including the renewables arm, being offloaded. These deals have freed up cash for reinvestment and allow management to focus more fully on expanding energy infrastructure.
The dividend was rebased lower in 2024 to help fund these growth plans and prevent pressure on the balance sheet. Despite this, there’s still a respectable 3.9% forward dividend yield on offer, which is expected to grow in line with inflation. But as always, no shareholder returns are guaranteed.
National Grid looks relatively immune to the knock-on effects of the Middle East conflict. It has limited exposure to wholesale energy prices, and its revenues are positively linked to inflation, providing a natural hedge to these unhelpful dynamics.
Despite the rise in investment spending, we have no concerns about balance sheet health. Reliable revenues and prior equity raises mean the group should be able to proceed with its spending plans without issues. And with around 80% of its debt locked in at fixed rates, the impact of potentially higher interest rates in the near term should be manageable.
We commend National Grid’s willingness to pounce on shifting energy trends. Should management pull it off, investors will likely be rewarded for their patience. However, the sheer scale of the investment plans brings plenty of execution risk, so there’s likely to be some volatility along the way.
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
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.