National Grid a good 'hedge against Trump rally', JPMorgan says
National Grid
997.00p
17:00 04/10/24
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.
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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.