The National Grid (LSE: NG.) share price has slumped more than 10% at the time of writing on Friday.
It’s all about FY results the day before, on 23 May. And the fact that the announcement included the shock news of a new £7bn equity issue.
It’s intended to fund the firm’s new growth plans. CEO John Pettigrew said: “We will be investing £60 billion in the five years to the end of March 2029 – that’s nearly double the level of investment of the past five years.“
The shares were already down 11% on results day. So as I write, we’re looking at a big double-digit crash in less than two days. Ouch!
Dividend cut!
It’s not the kind of company I expect to surprise the market like this. In fact, I’ve always seen it as a bit of a dull plodder.
It just pays steady dividends, year after year, with a clear vision of its future earnings and costs. Well, not this time. There’s a horrible word in this latest update, “rebased”.
The company said: “We will maintain a progressive level of total dividend growing from the current level that the Board has recommended for the year to March 2024. This equates to a total DPS (dividend per share) of 58.52p/share for 2023/24 which will then be rebased given the increased number of shares following the rights Issue.“
So the same total dividend cash in future years, but divided by the enlarged number of shares?
Cheap shares
This news might have shareholders tearing their hair out. But please don’t, as the new rights issue sounds like a sweet deal to me.
Existing shareholders will have the right to buy seven new shares for every 24 they currently own. And, wait for it… they’ll only have to pay 645p each for them.
That’s a full 43% below the closing price on Wednesday, the day before the news broke. And it’s still a discount of 28% on the price as I write.
A good buy?
Is the National Grid share price likely to fall as low as the new rights price? The new issue is aimed at raising £7bn of fresh capital.
And the market cap, even after the two-day share price slide, is still at £33bn. If the new issue really does help grow future earnings, then I reckon it could provide a long-term market cap boost.
If anything, I reckon the market has overreacted. And I could be tempted to buy some at the new market price, even without being able to take up the new offer.
Valuation
The main problem for investors now is that all valuation measures, hopes and forecasts are up in the air. Those fundamentals, for such a boringly predictable company? Meaningless. And that’s the big risk.
We’ll have to wait until the dust settles before we can get a handle on the new value of the stock. But if I owned any National Grid shares, I reckon I might snap up the rights offer.
And what a way to end the week, with National Grid suddenly the most exciting stock on the FTSE 100!
