On Tuesday, Barclays (LON:BARC) adjusted its price target on National Grid (LON:NG:LN) (NYSE: NGG) shares, a prominent utility company. The firm reduced the target to GBP 11.20 from the previous GBP 13.65 while maintaining an Overweight rating on the stock.
This change reflects Barclays' updated valuation model, which now accounts for recent developments including National Grid's financial results, the completion of a £7 billion rights issue, and new company guidance.
The revised valuation from Barclays comes as National Grid continues to play a significant role in the energy transition. The company has been actively investing in its network infrastructure, which is seen as crucial in supporting the shift towards more sustainable energy sources. National Grid has positioned itself to achieve a compound annual growth rate (CAGR) of 10% in asset growth, which is considered to be robust and future-proof.
According to Barclays, National Grid's regulated rate of return on equity (RORE) is anticipated to be between 9% and 10%. This solid performance underpins the analyst's decision to value the company at a 40% premium to its Regulatory Capital Value (RCV). The RCV is a measure used by UK regulators to determine the invested capital on which utilities are allowed to earn a return. Previously, the company was valued at a 20% premium to its RCV.
The updated price target of 1120 pence (GBP 11.20) reflects Barclays' confidence in National Grid's investment strategy and its potential to generate significant shareholder value in the context of the ongoing energy transition. Despite the lowered price target, the Overweight rating suggests that Barclays continues to view National Grid's stock favorably relative to its sector.
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