Source: Sharecast
Berenberg, which stood by its 'hold' rating on the stock, said National Grid's five-year £60.0bn capex plan demonstrates the "unequivocal need" for network investments to underpin the energy transition.
"However, we think that a balancing act is required between investment obligations, leverage and shareholder returns, which is further complicated by some regulatory unknowns," said Berenberg.
Berenberg said the regulatory backdrop in the UK and US was generally supportive, acknowledging the magnitude of investment that was required, but it still thinks that some pieces of the puzzle were missing - for example, UK regulator Ofgem's transmission price controls, which were due to be finalised in December 2025.
"Those missing pieces are important, particularly when considering our expectation that National Grid's leverage will rise back towards its pre-rights issue (2023/24) level during the course of its five-year plan," said the German bank.
"Therefore, in our view, unless Ofgem's regulatory settlement is better than expected, National Grid's leverage looks set to limit its dividend growth to the rate of inflation for the foreseeable future, muting its shareholders' participation in the group's expected five-year 10% asset CAGR and 6% EPS CAGR."
Reporting by Iain Gilbert at Sharecast.com