National Grid share price forecast: Crisis turned into opportunity?
The price of National Grid shares (NG) has risen for 8 consecutive months as higher energy prices have benefitted the company’s bottom line.
Inflation in the United Kingdom rose 7.8% during the 12 months ended in April this year, with housing and household services, including electricity, gas and other fuels, contributing 2.76% of the overall figure.
An energy shortage in Europe caused by blockades and sanctions imposed on Russia in light of its invasion of Ukraine is a major reason behind the sharp increase in electricity prices.
According to data from Statista, electricity prices in the United Kingdom have reached record highs this year, with day-ahead baseload contracts averaging £263.79 in March 2022, compared to £57.83 a year ago.
What can be expected from this utility stock considering the current scenario in the energy sector? In this article, we assess the latest National Grid share news, its price action and fundamentals to outline plausible scenarios for the future.
National Grid stock analysis: Price drivers and technical view
So far in 2022 (as of 26 May), the National Grid share value has surged by 12% as higher electricity prices have boosted the company’s earnings. As a result, NG shares are outperforming the broad-market FTSE 100 index (UK100), which is up 0.51% YTD.
On 19 May, the Board of National Grid approved an increase in the company’s final dividend to 33.76p for a total of 50.97p paid out for the entire year, compared to 49.16p the company paid the previous year.
This results in a forward dividend yield of 4.2% – an attractive percentage for income-seeking investors and possibly one of the reasons why the stock price has surged in the past few months.
The chart above indicates that NG shares are embarked on an ascending price channel that started in October last year as UK inflation and energy prices started to climb.
Both the upper and lower bound of that formation remain the most important resistance and support areas to watch moving forward, while momentum readings appear to be favouring a positive National Grid share outlook.
As of 26 May, the Relative Strength Index (RSI) has been standing at 51.3 (neutral), while the Moving Average Convergence Divergence (MACD) has remained in a positive territory and above the signal line, even though it has been declining of late.
Moving forward, NG’s 50-day and 200-day simple moving averages are also relevant areas of support to watch in case the rally decides to take a breather.
Any plausible NG share price forecast should take into account potential scenarios concerning Russia’s invasion, including a sharper deterioration in the relationship between European countries and Russia, which could accentuate the current energy crisis.
An escalation in political tensions may favour the company at this point, although it can also lead to social discontent that may ultimately put a cap on National Grid’s ability to keep raising its prices if regulators step in.
National Grid fundamental analysis: Latest earnings
On 19 May, National Grid published its financial results covering the 2021/2022 fiscal year ended 31 March.
Over the period, the company recorded total revenues of £18.45bn, resulting in a 35% year-on-year jump – revenues surged on an escalation in prices.
Moreover, the company’s New England operations also experienced a £300m+ boost.
Operating profits for the company experienced an 82% increase on a year-on-year basis at £4.37bn. On an adjusted basis, they were 11% higher on the company’s pro-forma estimates for 2021, which allow for a more coherent comparative basis due to changes in NG’s corporate structure, revenue streams and other similar factors.
Meanwhile, earnings per share on a statutory basis experienced a 64% jump on the 2020/2021 fiscal year, landing at 60.6p a share. Dividends per share stood at 50.97p, resulting in a payout ratio of 84.1%.
During this year, the company produced negative cash flows from its continuing operations of £1.62bn, while net debt climbed to £42.8bn – up on the £28.55bn it reported the previous year as National Grid took an £8.2bn bridging loan to fund the acquisition of Western Power Distribution.
National Grid stock projection: Analyst sentiment
Are National Grid shares ‘buy’, ‘sell’, or ‘hold’? According to data compiled by MarketBeat (as of 26 May), the consensus recommendation from analysts for NG stock was neutral, based on two analysts’ ratings. Both financial services companies rated the stock a ‘hold’.
The average National Grid share price target was set at 1,220p, resulting in an implied 0.5% downside risk based on 25 May’s closing price of 1,227p.
Meanwhile, the consensus rating compiled by CNN Money for the company’s American Depositary Receipts (ADRs), which represent five ordinary shares of National Grid, was also ‘hold’. Six of 11 analysts rated it a ‘hold', three gave it a ‘buy’ recommendation, one believed it was ‘outperforming’ and another one suggested ‘sell’.
The average 12-month National Grid share price prediction from analysts for the stock’s ADR was $74.02. The highest future stock price projection from analysts was $78.94 and lowest $66.20.
National Grid share price forecast: Targets for 2022-2025
As of 26 May, Wallet Investor held a neutral short-term outlook on National Grid shares based on an analysis of its technical indicators. It expected the price to average 1,219.730p on 9 June 2022.
Its baseline National Grid share price forecast 2022 was slightly bullish, suggesting that the price could reach 1,239.340p by the end of the year.
As for the long-term, this third-party service predicted that the National Grid share value could rise to 1,318.480p by the end of 2023, 1,397.980 by the end of 2024 and 1,477.150p by the end of 2025.
Although Wallet Investor did not provide price targets for 2030, its five-year National Grid stock forecast suggested it could hit 1,613.040p in May 2027.
Analysts, algorithm-based forecasts and expectations from sources noted here should not be considered a recommendation to buy or sell NG stock. They have been drafted based on an analysis of the National Grid share price history. Past performance never guarantees future results. Many factors could affect the stock’s actual performance.
It’s important to do your own research. Your decision to trade depends on your attitude to risk, your expertise in the market, the spread of your portfolio and how comfortable you feel about losing money. You should never trade more than you can afford to lose.
FAQs
Is National Grid a good stock to buy?
The energy crisis is creating a tailwind for National Grid, which has contributed to the current NG stock rally. The company’s strong positioning in the UK market and its relatively stable financial situation make it qualify as an appealing dividend stock on its 4.1% dividend yield.
However, Whether National Grid is a suitable asset depends on your own trading objectives – and the opinion based on your own research. Remember, it’s important to reach your own conclusion of the company’s prospects and likelihood of achieving analysts’ targets. And never invest money that you cannot afford to lose.
Will National Grid shares go up or down?
As of 26 May, the consensus analysts’ sentiment for the NG stock was neutral – the majority of analysts covering the stock rated it a ‘hold’. Meanwhile, algorithm-based forecasting service Wallet Investor gave bullish price targets for the stock for the next couple of years.
Why has the National Grid share price been going up?
Higher energy prices amid the crisis triggered by the Russia-Ukraine war have lifted the share price of National Grid (NG). The company could benefit from higher electricity prices.
Will National Grid shares recover?
As of 26 May, National Grid shares have been trading near all-time highs.
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