National Grid reported half-year net underlying revenue of £5.5bn, down 1%. This excludes the impact of timing differences between the two years, as well as pass-through costs which are fully recoverable.
Underlying operating profit fell from £2.1bn to £1.8bn, with all divisions seeing lower profits, in line with market expectations.
Net debt came in at £43.9bn, an increase of £2.9bn over the first half. There was a free cash outflow improved from £923m to £331m.
Medium-term guidance out to 2026 has been reiterated, with underlying earnings per share expected to grow between 6-8% annually.
A dividend of 19.4p per share was announced, up 9%.
The shares were broadly flat following the announcement.
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Our view
As the energy landscape changes, National Grid's attempting to plant itself at the centre of the electric revolution. With the pending sale of a 20% stake in Natural Gas set to be completed soon, the group's portfolio of assets will then be 75% focused towards electricity.
National Grid's not stopping there though. The group invested a whopping £3.9bn across its asset base in the first half in a bid to drive the energy transition forward. That number's expected to rise above £8bn this year, with a good chunk of that earmarked for the decarbonisation of energy networks.
In return for investing those billions to maintain and upgrade its infrastructure, regulators allow National Grid to earn a reasonable profit, with the potential to earn more if it exceeds targets. That translates into predictable revenues, low borrowing costs, and feeds into what should be a relatively dependable dividend. But remember, no dividend is ever guaranteed.
The regulatory environment can be a double-edged sword, though, as regulators have the final say over National Grid's profit potential. The ongoing cost-of-living crisis and the recent surge in energy costs mean consumers are already struggling to pay their bills. That's put a lot of pressure on regulators to start slicing into utilities' profits which could potentially put brakes on future growth. Remember, because of regulation, National Grid's future isn't entirely under its own control.
Noticeably, profits fell sharply relative to revenue in the first half. This stems from the fact that last year's comparable period benefitted from multiple one-off tailwinds that weren't repeated this year, or stripped out of underlying profit figures. Adjusting for these one-offs, changes in profit would be more in line with changes in revenue.
Given the group's significant investment in this current high-rate environment, we've been keeping a close eye on the cost of funding all of it. Finance costs were broadly flat year-on-year, and current high levels of inflation are actually a net benefit for National Grid, more than offsetting the negative impact of higher interest rates.
National Grid has the traditional pros of a utility, but also growth opportunities - a rarity for the sector. And we commend its willingness to pounce on shifting energy trends. Compared to some peers, the valuation doesn't look too demanding. But potential investors should be aware that to some extent, the group's fortunes are in the hands of the regulators.
National Grid key facts
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