NATIONAL GRID PLC (NGG): what the price assumes

In the published model solve dated 2026-Q2, anchored at $80.22, NATIONAL GRID PLC (NGG) is priced for -4.6% growth. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-06-27.

Generated: 2026-08-10 · Exported: 2026-08-12 · Source: https://boothcheck.com/report/NGG

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

Solve inputs: computed at a 6.2% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~9.2pp.

Reconcile: at the x-ray's 9.3% required return this reads ~19.4%/yr; the models below use their own rates.

How unusual the bet is: within-range

Valuation X-Ray

Asset, earnings-power and peer-multiple models all land far below the price; ONLY the growth-DCF reaches it. The bet is durable compounding the static frames structurally cannot price (a moat/durability premium).

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that justify the price: Growth Families that call it expensive: Asset

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 6.1%); the inversion above states its own rate.

Per-Model Detail (n=15)

Solvency

Bullet Takeaways

• National Grid owns the regulated wires that carry electricity and gas across Britain and parts of the northeastern United States, a business whose earnings rise mechanically with the size of the asset base rather than with the economic cycle, and that base grew about 10.9% in the year to March 2026.
• The defining risk is that growth is bought with debt and equity: net debt sits near £55 billion against operating income, interest coverage is only about three times, and the company has already leaned on a £7 billion rights issue and a scrip dividend to fund its build-out, so the balance sheet carries the weight of the plan.
• Watch the £70 billion five-year investment framework to 2030/31 and the RIIO-T3 price control running to March 2031, which together set the allowed returns and capital the company can deploy.

Bull Case

The counterintuitive part of National Grid is that the more it spends, the more it is allowed to earn. A normal company invests and hopes the projects pay off. A regulated network operator earns a return set by the regulator on the value of the assets it builds, so capital investment is not a drag on returns, it is the source of them. National Grid put a record £11.6 billion of capital to work in the year to March 2026 and grew its asset base about 10.9%, and that asset growth is the engine that drives earnings. For a utility, that is the whole game: build more regulated assets, earn the allowed return on a bigger base.

The regulatory framework turns that mechanism into a multi-year contract. The RIIO-T3 price control, agreed for the period to March 2031, sets the terms on which National Grid invests in the British transmission network, and it is sized to nearly double the power the grid can carry to connect new generation and meet rising electricity demand. On top of it sits an expanded five-year financial framework committing at least £70 billion of capital to 2030/31, largely underpinned by regulatory agreements in the UK and US, with the company targeting around 10% annual asset growth and 8% to 10% annual underlying earnings growth. These are not aspirational targets pulled from thin air; they are backed by approved allowed returns on approved spending, which is as close to visibility as the equity market offers.

For an income investor the appeal is the dividend that rides on that base. National Grid lifted its total dividend 3.8% to 48.49 pence and aims to grow the payout in line with UK consumer price inflation, so the income is tied to a regulated, inflation-linked earnings stream rather than to discretionary cash flow. The bull case is simply that the structure compounds: a regulator-sanctioned £70 billion build, a growing asset base earning an allowed return, and an inflation-linked dividend on top. It is, frankly, just how regulated utilities are meant to work, and National Grid is operating the model at unusual scale.

Bear Case

The bear case sits on the cost of the build, not the demand for it. A regulated utility does not face a demand cycle the way a commodity producer does, but it faces a financing cycle, and National Grid is at the most capital-hungry point of one. Funding £70 billion of investment to 2030/31 requires raising the money before the allowed returns on it fully arrive, and the company has already shown how: a £7 billion rights issue diluted holders, asset sales pared the portfolio, and a scrip dividend option lets it pay holders in shares rather than cash. Share count has been rising around 7.5% a year, which means earnings growth has to outrun a growing share base just to keep per-share value flat.

Leverage is the harder constraint. Net debt stands near £55 billion, roughly 2.3 times operating income, and interest coverage is only about three times. For a regulated utility with predictable cash flows that is a workable structure, but it is a thin cushion compared with most operating businesses, and it leaves the company exposed to interest rates in two directions at once. Higher rates raise the cost of the debt that funds the plan, and they also raise the return investors demand from a bond-like income stock, which pressures the share price. A utility this leveraged is a bet that the regulator keeps setting allowed returns high enough to service a balance sheet of this size while still rewarding equity.

The valuation is the part the methods cannot defend on standard ground. No family of valuation method reaches today's price: it reads rich against asset value, against earnings power, against peer multiples, and against forward growth. Reading the price backward, the market is paying roughly 72 times operating income and asking the company to hold growth at its self-funding ceiling for close to nine years, a persistence that only about a fifth of comparable growers have historically sustained. The framework treats that as elevated, and the comparison is imperfect for a regulated foreign issuer, but the direction is clear: the price is paying for the £70 billion plan to deliver its full allowed returns, on schedule, with the financing absorbed cleanly. That is a lot to assume for a business whose returns are set by a regulator that can revisit them.

Valuation

The price is making a long-duration bet on the regulated build-out. Read backward, today's level implies the company holds operating growth at its self-funding ceiling for close to nine years, which is the multi-year span of the current investment framework. That is a coherent story, because National Grid's earnings really are set by a regulator over multi-year price controls, but it is also a demanding one: only about a fifth of comparable growers have sustained that kind of persistence, and the framework labels the embedded assumption as elevated. The bet is that the £70 billion plan delivers its allowed returns across the full RIIO-T3 period to 2031.

The valuation methods all sit below the price, which for a heavily capitalized regulated utility deserves a careful read rather than a blunt one. The asset-based and earnings-power lenses look especially far below, but those comparisons are the least reliable for a foreign issuer reporting under IFRS at this leverage, where the published asset and earnings figures do not map cleanly onto the methods built for domestic operating companies. The more telling point is the pattern: even the forward-growth method, which credits the regulated build, does not reach today's price.

Solvency is the number that frames the downside, and it is the one to weigh most carefully. Net debt near £55 billion is about 2.3 times operating income, with interest coverage around three times. That is serviceable for a regulated network whose cash flows are predictable and inflation-linked, and the recent rights issue and asset sales were aimed precisely at strengthening it before the heaviest spending. But it is a leveraged structure, and a utility this dependent on continuous access to debt and equity markets is more sensitive to interest rates than its steady operating profile suggests. The income is real and inflation-linked; the question the price asks is whether the regulated returns stay generous enough to carry a balance sheet of this size through the build.

Catalysts

The regulatory calendar is the catalyst that matters most. The RIIO-T3 price control, agreed for the period to March 2031, sets the allowed returns and the scale of investment for National Grid's British transmission business, and it is built to nearly double the power the grid can carry. Because a network operator's earnings are a function of regulator-approved spending and allowed returns, the terms of this control, and any future revisions to it, are the single largest external driver of the earnings path.

The investment ramp gives the near-term shape. In the year to March 2026 National Grid invested a record £11.6 billion, grew its asset base about 10.9%, and reported underlying earnings per share up 8% at constant currency to 78.0 pence. For the 2026/27 year the company guided underlying earnings-per-share growth of 13% to 15%, reflecting higher allowed revenue as it steps up delivery from the prior price control to RIIO-T3. Those allowed-revenue step-ups are what the next year of results will test.

The capital structure and dividend are the threads income holders should track. The company raised its total dividend 3.8% to 48.49 pence and aims to grow it with UK inflation, while continuing to fund the build through a mix of debt, asset sales, and a scrip dividend option. Whether it can finance £70 billion of investment without further straining the balance sheet or diluting holders is the question that runs alongside the regulated growth story.

Peer Cohorts (Per Segment, With Filing Citations)

Core business (reported)

• BIP (BIP)
• FY2025 20-F: …from investment funds, operating companies acting as strategic buyers, construction companies, commercial and investment banks, and commercial finance companies. Many of these competitors are substantially larger and have considerably greater financial, technical and marketing resources than are available to us. Some…
• FY2025 20-F: …potentially result in reduced value for assets, or in extreme cases, a stranded asset." Marketing Our marketing efforts focus on leveraging our competitive advantages described and our group's world-class operating businesses described in Item 4.B "Business Overview". We also leverage our relationship with…
• SE (Sea Ltd)
• (no filing in the citation store)
• LNG (CHENIERE ENERGY, INC.)
• FY2025 10-K: …contract terms, to the extent customers elect to take delivery of their LNG, (2) adjustments to the consumer price index and (3) the outcome of certain contingent events, including the achievement of milestones upon which delivery of LNG under certain contracts is conditioned. 87 Table of Contents CHENIERE ENERGY,…
• FY2025 10-K: …Factors and Competition , we expect the scope and extent of our future climate and sustainability initiatives 17 Table of Contents to evolve accordingly. While we have not incurred material direct expenditures related to climate change, we are proactive in our management of climate risks and opportunities, including…
• UGP (UGP)
• (no filing in the citation store)
• EIX (EDISON INTERNATIONAL)
• FY2025 10-K: …tax positions in accordance with the authoritative guidance. Key Assumptions and Approach Used. In determining whether it is more likely than not that all or some portion of net operating loss and tax credit carryforwards can be utilized, management analyzes the trend of GAAP earnings and then estimates the impact of…
• FY2025 10-K: 7% of which was associated to counterparties with an investment grade rating of A or higher and 67.2% was associated with a CPUC approved electronic broker and exchange platform operating under a rigorous risk management framework. For more information related to credit risks, see "Notes to Consolidated Financial…
• RCL (ROYAL CARIBBEAN CRUISES LTD)
• FY2025 10-K: …restructuring charges and other initiatives expenses; (ii) impairment and credit losses; and (iii) gain on sale of controlling interest. Net Yields represent Adjusted Gross Margin per APCD. We utilize Adjusted Gross Margin and Net Yields to manage our business on a day-to-day basis as we believe that they are the…
• FY2025 10-K: …our competitors or otherwise compete effectively with other vacation alternatives, our results of operations and financial position could be adversely affected. If we are unable to appropriately manage our cost and capital allocation strategies with our goal of satisfying guest expectations, it may adversely impact…
• CEG (CONSTELLATION ENERGY CORPORATION)
• FY2025 10-K: …energy prices, partially offset by lower load volumes • favorable retail load revenue of $75 primarily due to higher contracted energy prices and load volumes 68 Table of Contents 2025 vs. 2024 $ Change % Change Description Other Power Regions 77 1.4 % • favorable retail load revenue of $50 primarily due to higher…
• FY2025 10-K: ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Other Key Business Drivers for more information on the Russia and Ukraine conflict. Commodity Derivative Activity The following table provides detail on changes in our commodity derivative contract net assets (liabilities)…
• SO (SOUTHERN CO)
• FY2025 10-K: …to the customers of Southern Company Gas. See Notes 5 and 7 for additional information. The gas marketing services segment provides natural gas marketing to end-use customers primarily in Georgia through SouthStar. The "All Other" presentation includes operating segments and subsidiaries that fall below the…
• FY2025 10-K: …capacity between delivery points in order to serve its customers and various markets. NYMEX futures and OTC contracts are used to capture the price differential or spread between the locations served by the capacity to substantially protect the natural gas revenues that will ultimately be realized when the physical…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.