JP Morgan says National Grid strategy will pay dividends

The company’s sell-down strategy in Gas Distribution was both “sound and simplistic”, analyst Christopher Laybutt said in a research note sent to clients.

When it completed in early 2017 the transaction could be expected to deliver value of up to 30p per share and a 100p special dividend.

Furthermore, its US regulated arm looked set to turn a corner while its UK operations were performing above expectations.

Under a ‘blue-sky’ scenario, the long overdue rate cases filed over the last six months might – if successful – deliver up to 6-7% earnings accretion from fiscal year 2018 onwards.

The dividend was continuing to grow more quickly than the retail price index too, supported by the firm’s operating cash-flow and strong balance sheet, the broker went on to explain.

Regulatory risk in the UK was also seen as low through into the next decade.

Laybutt boosted his target price on the shares from 902p to 1.050p and lifted his recommendation from ‘neutral’ to ‘overweight’.