National Grid’s [NG] share price has been on a bumpy ride in 2020. After opening in January at 945.50p, the UK energy supplier’s shares began the year brightly, rising to 1073.80p on 19 February, before dropping to 789.13p on 24 March, shortly after the UK went into a total lockdown triggered by the coronavirus. Having made a choppy recovery since then, National Grid’s share price finished last week at 935.00p, an 18.48% rise from March’s 52-week low.
After the FTSE 100 constituent’s revenue and earnings per share declined in FY2020, is National Grid’s share price primed to get back on track?
When is National Grid reporting H1 earnings?
What happened in National Grid’s previous results?
On 18 June, National Grid’s share price staged a brief and volatile rally after the utilities company reported full-year revenue for 2020 of 14.54bn, 2.63% below the prior year's results.
“Looking ahead, while Covid-19 will impact our financial performance in FY21, we expect this to be largely recoverable over future years and therefore anticipate no material economic impact on the Group in the long term,” said CEO John Pettigrew. “With an efficient balance sheet that underpins asset and dividend growth, the Group is well positioned to create value for shareholders."
Investors interested in National Grid’s share price will be keen to get more details around the extent of any downturn owing to the pandemic, coupled with reassurance over the dividend payout.
"With an efficient balance sheet that underpins asset and dividend growth, the Group is well positioned to create value for shareholders" - John Pettigrew, National Grid's CEO
Why should investors care about National Grid’s share price?
Supply shortages could spark concerns
On 3 November, National Grid ESO (Electricity Supply Operator) issued its first electricity margin notice (EMN) to the market since 2016, as it sought a larger cushion of spare capacity from providers. The previous day it had warned of "tight margins ... owing to a number of factors including low renewable output and the availability of generators over periods of the day with higher demand." The company later withdrew its EMN after its "buffer of spare capacity [had] been restored to an adequate level."
National Grid ESO also warned about tight margins in October, due to low winds and generator outages, and in September issued an automatic capacity margin notice, warning that reserves had fallen below its 500MW threshold.
While unlikely, “if supply and demand did become a serious issue for National Grid, power outages could become a more persistent problem”, according to The Motley Fool's Kirsteen Mackay. Mackay added that “blackouts could have a negative effect on the National Grid’s share price”. Investors will be looking for reassurance in National Grid’s H1 update, and its plans to stay on top of these demand and supply issues.
"if supply and demand did become a serious issue for National Grid, power outages could become a more persistent problem" - Kirsteen Mackay, The Motley Fool
Reliable dividend payouts could boost the stock
Despite the uncertain economic future brought about by the COVID-19 crisis and Brexit, National Grid’s share price may attract investors because it is “one of a handful of companies that haven’t suspended dividend payouts”, according to analyst and The Motley Fool writer Rupert Hargreaves. He points out that, as the owner and operator of the vast majority of electricity infrastructure in the UK, “demand for the group’s services has remained steady throughout the pandemic”, while “its US business has also continued to grow.” Hargreaves also adds that it is unlikely the business will face any significant competition in the next decade, due to the sheer difficulty of attempting to replicate National Grid’s extensive infrastructure.
National Grid reported a dividend of 0.49p for 2020, which was a 2.60% year-on-year rise. The 18 analysts covering the company with the Financial Times anticipate a dividend of 0.50p for the upcoming fiscal year, an increase of 1.91%. Should Thursday’s half-year update indicate the dividend increase remains on track, it could offer a fillip to National Grid’s share price.
What are analysts expecting?
According to the FT, the latest earnings per share consensus estimate for FY2021 is 51.91p, down from the 55.20p reported in 2020, which itself was below the forecast 58.96p. Among 14 analysts forecasting FY2021 revenue with the FT, the consensus estimate of £14.98bn would represent an uptick from 2020's £14.54bn.
Among 16 analysts offering 12-month price targets with the FT, National Grid's share price has a target of 995p, with a high estimate of 1,065p and a low estimate of 920p. The median estimate represents a 6.42% increase from last Friday's close at 935p.
Of the 18 analysts offering recommendations with the FT, five rate National Grid a Buy, with 10 Outperform and 3 Hold ratings. With a consensus Outperform — and no Underperform or Sell ratings — analysts are forecasting further upside for the National Grid’s share price.
|PE ratio (TTM)||26.32|
|Quarterly revenue growth (YoY)||-3.90%|
National Grid's share price, Yahoo Finance, 11 November 2020