National Grid Faces Scrutiny Over 31 Billion Pound Investment Plan

National Grid faces investor scrutiny over the delivery and financing of its expanding electricity transmission network as UBS maintains a negative assessment of the company's shares ahead of its November 5 results. The UK energy network operator is expected to report record first-half operating profit, but the bank questions its valuation and the pace of infrastructure investment.

UBS retained its 1,110p price target, below National Grid's closing share price of 1,218p on October 16. The bank's assessment reflects valuation concerns rather than expectations of an immediate deterioration in earnings, according to the report published by Yahoo Finance UK.

UBS forecasts underlying operating profit of £2.624 billion for the first half, up from £2.292 billion a year earlier. Earnings per share are expected to reach 35.7p, compared with 29.8p in the previous period, supported by higher permitted returns and increased investment in UK electricity transmission.

The bank does not anticipate significant surprises in the upcoming results or changes to financial guidance. Instead, attention is expected to focus on major infrastructure projects, capital allocation, and National Grid's investments in the United States.

National Grid has set a target of £31 billion in UK electricity transmission capital expenditure over the five years to March 2031. According to UBS, investors are likely to seek updates on the progress of major projects as concerns grow over delays across the wider infrastructure program.

The bank highlighted findings from the National Audit Office, which identified 64 of the 88 projects associated with the Clean Power 2030 initiative as being at an early development stage. Those projects were not expected to connect by the dates originally considered optimal for reducing electricity network costs, raising questions about implementation timelines.

UBS also raised concerns about 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, while cash flow from the project is not expected until the 2030s.

The investment presents a different financial profile from regulated network infrastructure, according to the bank's analysis. Spending on regulated networks generates returns during construction, whereas the Texas development is expected to take longer to produce cash flow.

UBS warned that additional investments with similar characteristics could increase National Grid's financing requirements as its broader capital expenditure plan reaches £70 billion. The bank also pointed to a sharp increase in capitalized interest, which rose to £424 million in the first half from £189 million a year earlier as investment spending expanded.

For the financial year ending March 2027, UBS increased its earnings-per-share forecast to 91p from 89p. The revision followed stronger interconnector profits and two capital markets transactions, although the bank characterized those contributions as non-recurring.

National Grid's November 5 results are expected to provide investors with further information on earnings, infrastructure delivery, and investment plans as the company advances its long-term transmission spending program.