the good, the bad and the ugly – The Armchair Trader

First the good. National Grid LON:NG. just announced an enormous £7bn rights issue in May to help it strengthen the US and UK electricity networks it is responsible for. The full-underwritten rights issue in London will contribute towards a massive £60bn investment plan over the next five years.

The scale of the raise does not seem to have gone down well with investors though. The National Grid share price has dropped from over 1044p to trade at 884p at time of writing. It is shaping up to be a longer term re-set in investor sentiment as far as I can see.

Brokers remain bullish however: RBC Capital Markets called the share price correction the removal of “an overhang on the stock going forward.” And some analysts see this as a reset, with the company moving to play a more important role in a UK clean energy future.

The Bad: National Grid versus its global utilities peers

National Grid is looking mediocre on the fundamentals front. The dividend yield of 6.58% looks respectable enough, but it’s trading on a PE of 14.28x vs a peers average of around 10.3x. On top of that, the return on equity is 7.46%, versus 21.62% amongst its peers. Bear in mind this figure has been somewhat distorted by adding Centrica to the mix!

Analysis using the AI platform at Bridgewise shows National Grid to fall within the mean expected within global utilities stocks of this scale. The ROE is a red flag for investors, and historically, the correlation between its mixed results and the likelihood of National Grid shares outperforming is inconsistent, to say the least. Indeed, it is highly unlikely we will see any near term outperformance from National Grid, according to AI-generated peer analysis.

Not only that, National Grid was also dropped from the FTSE 350 index at the start of this month.

The Ugly: National Grid shares technical analysis

Looking at the trend following characteristics of the stock, and we see more negative vibes for National Grid. Analysis from Trend was carried out across several key technical indicators, including Japanese Cloud (Ichimoku) and the delay line, and the R* Momentum Indicator. Across four key trend following criteria, National Grid is exhibiting strong bearish characteristics.

According to Trend Intelligence in its analysis of National Grid, the medium term outlook is that the share price will continue to exhibit a strong negative trend in the weeks and months ahead. The price charts show price action operating below all moving averages and the Japanese Cloud. Trend rated National Grid at 85% negative. Bridgewise calls it a Hold at the moment.

National Grid is facing pressure to improve its networks as the developed world shifts towards higher consumption of electricity versus gas, and the demand for renewables goes up. The growth of data centres and the use of AI is also likely to bring further demands.

National Grid has also said that it plans to further fund investment by parting company with traditional energy assets like its LNG import terminal in Kent. But it also wants to sell its onshore US renewables business. This can be seen as part of a longer term trend for the company which is focusing more on its electricity assets, and selling its gas assets.