Morning Note: Market news and an update from National Grid.

Market News

Global stocks are drifting lower for the first time in seven sessions as the rally on Wall Street sparked by US-China trade talks showed signs of exhaustion. In Asia this morning, stocks were also weak: Nikkei 225 (-1.0% as strong yen weighed); Hang Seng (-1.0%); Shanghai Composite (-0.7%).

US authorities are set to cut capital requirements for banks, the FT reports. The Fed’s Mary Daly said the economy’s strength allows policymakers to be patient. 10-year Treasuries yield 4.52%.

Gold has continued to slide and currently trades at $3,145 an ounce, reaching a five-week low, as easing global trade tensions continued to reduced demand for safe-haven assets.

The FTSE 100 is currently 0.4% lower at 8,550. Companies trading ex-dividend today include BP (1.58%), GSK (1.18%), Shell (1.07%), Tesco (2.57%), and Unilever (0.85%).

The UK economy enjoyed its strongest quarterly growth in a year, expanding by 0.7% in the first three months, a touch faster than expected. Sterling trades at $1.3270 and €1.1860, while the UK 10-year gilt yield rose toward 4.71%, its highest level since 11 April.

Brent Crude oil futures tumbled over 2% toward $64 per barrel, extending losses from the previous session amid renewed concerns about oversupply following a surprise build in US crude inventories. NBC reported Iran is willing to forgo nuclear weapons in exchange for US sanctions relief.

Source: Bloomberg

Company News

National Grid has today released results for the financial year to 31 March 2025 that were slightly ahead of market expectations and reiterated its short and long-term targets. We are positive on the long-term outlook for the business given the company’s critical role in the energy transition and security of supply. As an income stock, the performance of the shares is driven, in part, by bond yields, with the recent volatility providing some uncertainly. However, in response to today’s robust update, the stock is up 2% in early trading.

National Grid operates a regulated business in the UK and US, with electricity and gas transmission and distribution assets. The group has no direct exposure to volatile commodity prices and relatively little exposure to usage levels.

Over the last couple of years, the group has undertaken several transactions to pivot its portfolio towards electricity. This has enhanced the group’s role in the decarbonisation of the energy system, with investment in infrastructure that enables higher penetration of renewable energy and low carbon technology. The company plays a critical role in ensuring security of supply, an issue that clearly came to the fore following the recent power outage in Iberia.

The company is undertaking a significant step up in investment, around £60bn over the five years to March 2029, nearly double the prior five years. This is expected to deliver a step-change in critical energy infrastructure in the UK and US in support of energy transition, security of supply, and economic growth objectives. The target is to generate asset growth CAGR of around 10%, with group assets heading towards £100bn by 2029, and underlying EPS CAGR of 6%-8% (vs. a base of 73.3p in FY2025).

Of the £60bn investment, around £51bn will be aligned to the EU Taxonomy to decarbonise energy networks. Nearly 80% will go into the group’s electricity networks, moving the mix towards 80%/20% electricity/gas by 2029. The company will further streamline its portfolio to focus on pure-play networks across regulated and competitive, onshore and offshore networks. It has already sold its ESO (electricity system operator, £673m), the final 20% equity interest in National Gas Transmission (£686m), agreed to the sale of its National Grid Renewables onshore business in the US, and launched the divestment process on Grain LNG.

Regulatory progress continued during the year. In the US, good progress was made with rate cases for the group’s New York businesses and Massachusetts Electric. These rate plans target necessary improvements for asset health, resilience, growth and clean energy. Most recently, in April, the company filed a joint proposal with the New York Public Service Commission for its Upstate New York electric and natural gas distribution business Niagara Mohawk Power Corporation. The proposed settlement is for a three-year rate plan that runs to March 2028. A final decision from the New York Public Service Commission is expected in the next few months.

In the UK, National Grid published its RIIO-T3 business plan outlining its intention to invest up to £35bn over the five years up to 2031. Amongst other outcomes, the investment will nearly double the power that can flow across the country, avoid £12bn of constraint costs, directly connect 35 GW of generation and 19 GVA of demand to the network and create optionality for a further 26 GW.

Earlier in the month, the company announced that Zoë Yujnovich would become the next CEO with effect from 17 November 2025, succeeding John Pettigrew, who after almost ten years in role, will retire from National Grid on 16 November 2025.

On to the results. In the financial year 31 March 2025, underlying operating profit grew by 12% on a constant currency basis to £5,357m, versus guidance for growth of around 10%. This improvement was principally driven by strong performance across the group’s regulated businesses including new rates for downstate gas businesses in New York, new rates for the Massachusetts Electric business, higher revenues supported by increased allowances and indexation in the UK and delivery of strong cost efficiency. This was partly offset by lower revenues from the group’s interconnectors.

The company saw reduced financing costs due to lower average net debt and as expected the additional share count from the May 2024 Rights Issue (see below) largely offset this improved performance, the leave underlying EPS up by only 2% to 73.3p, albeit slightly ahead of guidance.

Capital investment rose by 20% to a record £9.8bn during the year. This was principally driven by the ramp up in spend on Wave 1 Accelerated Strategic Transmission Investment (ASTI) projects and customer connections in the group’s UK Electricity Transmission business, increased spend on leak-prone pipe replacement and electricity transmission projects in New York; partially offset by lower investment in National Grid Ventures (NGV) with the commissioning of the Viking interconnector in the prior year, and National Grid Renewables and Grain LNG being classified as held for sale.

The regulatory asset value (RAV) rose by 10% to £60.2bn, with the UK and US up by 8% and 11% respectively. Group return on equity was 9.0%.

National Grid has a robust balance sheet and a strong investment grade credit rating, underpinned by regulatory revenue, which allows the group to secure the required long-term funding needed to invest in its business. The group believes it has the financial flexibility to deliver its strategy over the 5-year financial framework, helped in part by the £6.8bn rights issue in May 2024.

During the year, net debt fell by £2.2bn to £41.4bn and regulatory gearing fell to 61%, in line with the low-60% guidance. It is expected to trend towards the high-60% range by the end of the RIIO-T3 regulatory period.

The stock remains popular for investors seeking an attractive income that is growing in real terms – the dividend policy is to deliver annual growth in line with the increase in average UK CPIH inflation. The FY2025 payout has been increased by 3% to 46.72p, equivalent to a yield of 4.6%.

This afternoon, National Grid will be hosting an investor event, ‘Building our energy future: transforming electricity transmission’, a deep dive on the delivery of the company’s UK and US major capital projects.

Source: Bloomberg