UBS maintains a Sell rating on National Grid, believing the strategic update has not changed its view that the valuation is expensive
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UBS maintains a Sell rating on National Grid, believing the strategic update has not changed its view that the valuation is expensive
The report says the new strategic framework first outlined by the CEO emphasizes AI applications, data center load, and progress on UK transmission investment, but no new financial targets were announced; UBS still views National Grid with a 1,160p target price and a Sell rating.
- CEO Zoë Yujnovich gave the first comprehensive outline of the business vision after taking office, but the company did not announce any new financial targets.
- The company highlighted AI as a tool for work-order allocation, capital project efficiency identification, and dynamic line management, while data center demand could drive growth in UK electricity load.
- National Grid expects 19GW of additional UK load over the next five years, of which about 10GW is from data centers; UBS assumes about 3GW of new data center load by 2031 and warns that high power prices could dampen demand.
- About £31bn of the UK transmission capex plan is the largest single item of spending, and progress on ASTI large projects and planning approvals is the key variable.
- UBS believes the stock is expensive: the business trades at an aggregate premium of about 56% to spot RAB and rate base, while the US business implies about 21.9x P/E, near the upper end of the peer range.
Report interpretation
Overview
This report is UBS's company research note on National Grid's strategic update. CEO Zoë Yujnovich gave the first post-appointment outline of the updated strategic framework, focusing on AI applications in internal operations and capital project management, electricity load growth from data centers, and progress on UK ASTI transmission projects. The report notes that the company did not announce new financial targets, and UBS maintains its Sell rating and 1,160p target price.
Core views
UBS's core view is cautious: the strategic update strengthens the AI and data center demand narrative, but not enough to offset valuation pressure. National Grid's regulated network assets offer long-term investment characteristics, and the UK transmission and US regulated businesses provide high visibility; however, current valuation already reflects a considerable amount of optimism, and the UK's large transmission projects still face planning approvals, public opposition, and execution risks. UBS also believes the implied valuation of the US business sits near the top of the peer range, while the group's headline P/E does not look expensive only because of EPS uplift from front-loaded recovery mechanisms.
Analysis framework
The report combines event commentary, business segment analysis, regulated asset base valuation, peer valuation comparisons, and financial forecasts to form its view. The focus is not on resetting financial targets, but on assessing whether the strategic update changes the investment case: can AI improve operating efficiency, is data center demand sufficient to support higher grid investment, can UK transmission capex move into RAB smoothly, and has the share price already over-discounted these opportunities?
Methodology notes
sum-of-the-parts valuation
UBS says the target price is based on an SOTP approach and uses EV-RAB premiums derived from DCF analysis for the US and UK businesses separately.
discounted cash flow
DCF is used to support the premium assumptions applied to different regulated asset bases, reflecting long-term cash flows, regulatory returns, and capital spending cadence.
regulated asset base and rate base
The report measures valuation relative to spot RAB and rate base and notes an aggregate premium of about 56%.
expected share price appreciation plus dividend yield
UBS defines FSR as expected share price appreciation over the next 12 months plus dividend yield, and the target price uses a 12-month investment horizon.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- National Grid equity (NG.L)core coverage name
- Strengths
- The UK and US regulated energy networks provide a relatively stable asset base; AI, data center power demand, and transmission upgrades create a long-term investment theme.
- Weaknesses
- Valuation is elevated, dividend yield is low on the report's metrics, capital intensity is high, and free cash flow is negative.
- Comparison
- The US business implies about 21.9x P/E, near the upper end of the peer range; the group's headline P/E does not look expensive but is affected by accounting and recovery mechanisms.
- Risks
- Changes in regulatory returns, project approval delays, public opposition, operational missteps, high power prices suppressing data center demand, and changes in funding and credit conditions.
- UK Electricity Transmissionmajor source of capex and growth
- Strengths
- The £31bn UK transmission investment plan, ASTI projects, and grid expansion demand support RAB growth.
- Weaknesses
- A large number of overhead lines and around 1,500 transmission towers could trigger visual impacts and public opposition.
- Comparison
- Compared with other group segments, UK transmission is the largest single item in the capex plan.
- Risks
- Planning permission, FID and consent thresholds, policy execution, project cost, and schedule risks.
- US Regulated businessone of the regulated earnings sources
- Strengths
- The US power and gas distribution and transmission businesses provide a regulated earnings base.
- Weaknesses
- Valuation is already at a relatively high level.
- Comparison
- The report says the US business implies about 21.9x P/E, at the upper end of the peer range.
- Risks
- US regulatory decisions, rate reviews, credit conditions, and currency movements.
- Data centre power demandpotential incremental demand driver
- Strengths
- The company expects about 10GW of the next five years' 19GW of additional UK load to come from data centers, and identifies four regions with 0.5GW capacity each.
- Weaknesses
- UBS believes high power prices may become an obstacle to data center development and electricity demand.
- Comparison
- Management is more optimistic than UBS, saying conversations with data center developers indicate they need rapid build-out and rapid ramp-up.
- Risks
- Demand may fall short of expectations, behind-the-meter supply could delay interconnection demand, and grid connection and backup capacity remain uncertain.
Key data
- RatingSellThe chart shows a 12-month rating of Sell.
- Target price1,160pThe report text explicitly states a Sell rating and a 1,160p target price.
- UK additional load over the next 5 years19GWThe company expects 19GW of additional load in the UK over the next five years.
- Incremental data center load10GWThe company expects about 10GW of the 19GW additional load to come from data centers.
- Demand queue sizeabout 75GWThe report says the demand queue is close to 75GW.
- UK transmission capex£31bnThe largest single item in the capex plan is UK transmission, mainly including 17 ASTI projects and other large projects.
- Valuation premiumabout 56%The business trades at an aggregate premium of about 56% to spot RAB and rate base; about 46% as of March 2027.
- Implied P/E for US businessabout 21.9xUBS says the implied P/E for the US business is near the upper end of the peer range.
- Market cap£63.2bn / US$84.7bnDisclosed in the trading data and key metrics chart.
- 03/26E net debt/EBITDA5.5xDisclosed in the trading data and key metrics chart.
- 03/28E EPS impactabout 12p, about +15%UBS points out that FYmar28E EPS benefits from front-loaded spend recovery, but this is not matched by operating expenses.
Impact & implications
For investors, the implication is that National Grid still has the long-term asset and grid investment themes of a regulated utility, but near-term attractiveness is constrained by high valuation, negative free cash flow, capex expansion, approval uncertainty, and regulatory risk. AI and data center demand may improve the growth narrative, but UBS does not yet think that is sufficient to justify the current valuation or change its Sell rating.
Risks
- Actions by UK and US regulators may affect prices, returns, and valuation.
- Large UK transmission projects still need to pass planning, FID, and permitting processes, and overhead lines may face public opposition.
- High power prices could suppress the realization of additional data center load.
- Large-scale capex will increase net debt and keep free cash flow negative.
- Operational missteps could cause financial or reputational damage.
- The utilities sector is also affected by commodity prices, generation margins, demand changes, government policy, M&A, credit conditions, and exchange rates.
What to watch
- Whether the CEO's strategic framework is eventually converted into explicit financial targets.
- Actual efficiency gains from AI in work-order allocation, SAP replacement, the capital control tower, and dynamic line management.
- The interconnection pace for 19GW of new UK load and 10GW of data center demand.
- Whether all ASTI projects can enter the planning process within the year.
- The actual impact of the UK's Planning and Infrastructure Act 2025 and the subsequent Energy Independence Bill on approval efficiency.
- The balance between RAB growth, net debt, dividend yield, and free cash flow.
- Whether the valuation of the US regulated business remains near the upper end of the peer range.