National Grid Faces Scrutiny Over 31 Billion Pound Plan

National Grid PLC faces growing scrutiny over the delivery and financing of its infrastructure expansion as UBS maintains a sell rating ahead of the company's first-half results on November 5. The bank cites concerns about the utility's share valuation, project execution and investment costs, despite forecasting higher earnings.

UBS retained its price target of 1,110 pence, below National Grid's closing share price of 1,218 pence on October 16. Its assessment reflects concerns that the shares trade at a premium to the company's regulated asset base rather than expectations of an immediate earnings deterioration.

The bank forecasts first-half underlying operating profit of £2.624 billion, up from £2.292 billion a year earlier. Earnings per share are expected to rise to 35.7 pence from 29.8 pence, supported by higher permitted returns and investment in the UK electricity transmission network.

National Grid plans to spend £31 billion on UK electricity transmission capital expenditure over the five years ending March 2031. Investors are expected to seek updates on major infrastructure projects as the company advances its investment program.

UBS also highlighted delivery risks across the wider energy infrastructure sector. Its analysis cited the National Audit Office's identification of 64 of the 88 projects associated with Clean Power 2030 as being at an early development stage.

According to the bank's assessment, those projects were not expected to connect by the dates originally considered optimal for reducing electricity network costs. The development timeline raises questions about the pace of infrastructure delivery as the sector prepares for substantial investment.

Another concern involves National Grid's investment in Joulent, which is developing a 2.7-gigawatt captive power project at Kilby in Texas. National Grid has contributed $1.75 billion to the venture in exchange for a 35% ownership stake.

UBS expects the Texas project to begin generating cash flow only in the 2030s. The bank considers the investment a potential balance-sheet burden because regulated network projects generate returns during construction, while the Texas development has a longer timeline before producing cash flow.

The bank also warned that additional investments with similar financial characteristics could require National Grid to secure further funding. The concern comes as the company's broader capital expenditure plan reaches £70 billion.

National Grid's financing costs have also increased alongside investment spending. UBS reported that capitalized interest reached £424 million in the first half, compared with £189 million in the corresponding period a year earlier.

Despite its concerns about valuation and project execution, UBS raised its earnings-per-share forecast for the financial year ending March 2027 to 91 pence from 89 pence. The revision followed stronger interconnector profits and two capital markets transactions that the bank characterized as non-recurring gains.

UBS does not anticipate significant surprises in National Grid's upcoming results or changes to its financial guidance. Its assessment instead centers on the execution of major infrastructure projects, the scale of planned spending and the company's investments in the United States.

National Grid is scheduled to publish its first-half results on November 5, when investors will be watching for updates on infrastructure delivery and the company's investment plans.