As an energy company, National Grid (LSE:NG) specialises in electricity transmission and distribution. A FTSE 100 constituent, it operates throughout the UK and in parts of the US, including New York and New England. With rampant inflation and higher energy prices, I want to know where the National Grid share price could be heading next month. It currently trades at 1,175.5p. Should I be adding this firm to my long-term portfolio? Let’s take a closer look.
Inflation, war and the National Grid share price
In April, the business published an update in anticipation of its full-year results. Regarding underlying operating profit, it stated that its US ventures would be in line with guidance.
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In the UK however, the firm expects underlying operating profit to be higher than originally anticipated.
The results in the UK are “largely driven by higher inflation”. In March, the Bank of England said it expects inflation to reach 8% this spring, a 30-year high. It may go even higher through the summer and autumn.
This factor, combined with world events like the war in Ukraine, could keep energy prices high over a longer period of time.
This operating environment may favour the company, as it benefits from higher energy prices. That could send the National Grid share price much higher in May.
Over a longer period of time, however, it seems likely that energy prices will level off, especially if there is an end to the war. While the business may benefit in the current circumstances, this may not last.
Recent results and corporate transactions
For the six months to 30 September 2021, profit before tax was around £1bn. This had grown from £583m year on year an increase of 86%.
What’s more, historical results have been extremely consistent. For the year ended March, between 2017 and 2021, profit before tax remained steady at around the £2bn mark.
It should be noted, however, that past performance is not necessarily indicative of future performance.
In addition, the firm has been active on the corporate front. It bought Western Power Distribution last year, giving National Grid a near monopoly in Wales and the Midlands.
In March, it sold its majority stake in National Grid Gas in a move to become more electricity-focused.
Also in March, it sold its 50% interest in the St William Homes joint venture to Berkeley Group for over £400m. This provides the business with sufficient liquidity to pursue other ventures.
As investors begin to factor in the positive impact of these transactions, I think the National Grid share price may begin to rise over the next month.
Overall, the share price will likely be heading upwards in May, I feel. The current operating environment, combined with strong corporate activity, makes this a very attractive option for my portfolio. I will be buying shares soon.
