National Grid PLC (LON:NG.) was upgraded by Citigroup to ‘buy’ after the UK energy regulator provided more clarity on returns.
On Tuesday, Ofgem provided a slightly more generous final determination for the sector’s investment returns and spending for the period from April 2021 to March 2026, after the companies complained proposals it made in July were too tough.
The original proposal to allow power companies to make a return on equity of 3.95% was relaxed slightly to a more generous 4.3%.
Citi’s energy analysts said the proposal by Ofgem seemed “sufficiently attractive” to warrant acceptance by National Grid.
This would leave the company to focus on delivering additional total expenditure (totex) associated with carbon net zero targets.
With the share price implying “a mere 3% premium” to its regulated asset base (RAB) compared to around 20% for UK water peers, the analysts said, “we believe this gap should close”.
The 12-month price target was lifted 3% to 970p and the recommendation lifted to ‘buy’.
Elsewhere, Barclays lifted its target price on National Grid to 1,062p from 1050p, while Goldman Sachs nudged up its target for energy producer SSE PLC (LON:SSE) to 1,663p from 1,637p.