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Is National Grid plc Set For Electrifying Earnings Growth In 2014?

Today I am looking at electricity provider National Grid’s (LSE: NG) (NYSE: NGG.US) earnings prospects for 2014.

Earnings rebound expected following difficult start to 2014

Utilities companies are traditionally considered as offering some of the most secure earnings outlooks available to investors owing to their essential, classically-defensive operations — everyone needs to use electricity, gas and water, after all. Still, the intensive costs that come with rolling asset upgrades, from sewers to electricity lines, means that growth is not as clear-cut as perhaps first imagined.

Indeed, National Grid announced in November’s interims that pre-tax profit slipped 7% during March-September, to £979m, due to “the temporary additional cost of pre-financing asset growth at attractive interest rates.” Such expenditure is predicted to weigh on earnings growth during the current year as investment in regulated assets on both sides of the Pond rolls higher.

But for those willing to suck up near-term earnings woe, in my opinion National Grid’s ambitious plans to boost its asset base bodes  well for solid growth further out. The business has vowed to spend £3.5bn in 2013/2014 alone in order to grow its asset base by some 6% from last year’s levels, and is expected to keep expansion running at this rate well into the long-term, helped by clarity surrounding the new eight-year RIIO price controls in the UK.

National Grid’s earnings performance has been somewhat erratic in recent years, the firm having posted dips during two of the past three years. And City analysts expect the electricity play to punch a further 7% decline, to 52.1p per share, during the 12 months concluding March 2014. A 5% bounceback to 54.9p is anticipated for 2015, however.

These projections leave National Grid changing hands on P/E ratings of 15 and 14.3 for these years, sailing well below a forward reading of 18.5 for the broader gas, water and multiutilities sector.

While National Grid’s earnings are expected to remain solid if unspectacular this year, the company’s dividend prospects are much more of an appetising prospect. The firm is anticipated to increase 2013’s 40.85p per share payout to 42.1p in 2014 and 43.3p the following year which, is fulfilled, currently create chunky yields of 5.3% and 5.5% correspondingly.

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> Royston does not own shares in National Grid.