National Grid PLC ADRNGG

Morningstar Rating

Stock Research and Analysis

by Travis Miller

With its $11.8 billion purchase (including assumed debt) of New York-based Keyspan in August 2007, National Grid became one of the world's 15 largest utilities by revenue and reaffirmed its ability to woo regulators on both sides of the Atlantic. Despite Read more

Bulls Say

Aging electricity and natural gas transmission networks in the U.S. and U.K. will require large capital investments, which drive earnings growth.

The regulatory environments in all of National Grid's service areas have favorable terms that allow shareholders to participate in upside performance.

The company's releveraging through the Keyspan acquisition should boost equity returns.

Electricity and gas distribution rates in the U.K. are set to increase at the inflation rate plus more than 5% annually through 2010, primarily to fund large infrastructure investments. Read more

Bears Say

Falling interest rates led U.K. regulators to cut allowed utility distribution returns nearly 60 basis points between 2005 and 2008.

Despite the favorable dividend growth trend, rising bond yields would make National Grid a less appealing investment choice for income-oriented investors.

New York regulators could punish National Grid if it fails to produce the $200 million of cost savings for customers that it promised to seal the Keyspan deal.

Tighter credit markets could restrict access to capital the company might need to fund its capital investments. Read more

Strategy

For the past few years, management has refocused on core transmission and distribution energy operations. With that process nearly complete, the company is entering a growth period with planned capital Read more

Management

We think National Grid earns high marks for its stewardship. It separates its CEO and chairman roles, requires annual board meetings without management, offers generous employee stock-ownership plans while limiting dilution, keeps fixed executive compensation Read more

Profile

National Grid is an international utility that provides electricity and gas transmission and distribution in the U.K. and Northeastern U.S. Its primary role is to match Read more

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