National Grid a good 'hedge against Trump rally', JPMorgan says

National Grid has a strong investment case as its earnings momentum accelerates and represents a hedge to a reversal of the ‘Trump’ rally, JPMorgan Cazenove said on Friday.

Reiterating its 'overweight' rating, JPM said earnings momentum looked set to accelerate with tariff increases approved recently in the US and 61% of the Gas Distribution sell-down due to complete at the end of the month.

The sale of a second stake of around 14% was in the works too, JPM said, while further tariff increases possible in Massachusetts and Rhode Island this year.

Management plans to return around £4bn once the gas distrubution deal is completed, which is likely to include buybacks of around £1bn and special dividend and share consolidation.

"In our view Grid is an attractive proposition based on fundamentals," analysts wrote, keeping their target price of 1,100p. "In addition, it represents a high quality hedge to a reversal of the ‘Trump’ rally, having underperformed the market 16% LTM."

Unlike its US peers, National Grid’s correlation to 10-year government bonds is high at close to 80%.

Having already updated its forecasts to include the deconsolidation of GD from 1 April, also marking forecasts to market for FX, interest rate and inflation assumptions, the resultant earnings dilution is around 12-13% at net income, but a more modest 1.5% at the earnings per share level on average across the 2017-19 financial years at the EPS level of 65.2p, 65.4p and 68.6, putting the shares on a p/e ratio of 15.5x falling to 14.7x.