Shares in National Grid PLC (LON:NG.) nudged higher this morning after HSBC upgraded the utility giant to ‘buy’ from ‘hold’ due to what it calls a possible “stay of regulatory execution”.
The next electricity transmission price control is due to start in 2021, with the electricity distribution price control starting two years later in 2023.
Analysts at HSBC think it makes more sense for Ofgem to marry the two together and thus expect the energy regulator to defer the transmission price control for two years.
“In the medium term this will be beneficial to customers but in the short term will allow National Grid an extension to the current price control,” wrote Verity Mitchell in a note to clients.
Mitchell reckons the potential value of two additional years at the current price control is as high as £188mln.
On top of the possible regulatory benefits, the analyst also notes that National Grid offers a decent yield of around 4.9% and has “opportunities for further growth in the US”.
She upgraded the stock to a ‘buy’ and also upped her price target by 10p to £10.60.
National Grid shares added 0.8% on Thursday morning to £9.39.