Why National Grid plc Provides Terrific Shareholder Value

In this article I am looking at why I believe National Grid (LSE: NG) (NYSE: NGG.US) offers excellent bang for your buck.

Price to Earnings (P/E) Ratio

Shares in electricity giant National Grid have marched steadily higher since the start of the year, with investor enthusiasm buoyed national gridby the excellent progress of the firm’s cost-cutting measures instilled under the new RIIO UK price controls which run from 2015-2018.

Based on current earnings forecasts the power giant was recently changing hands on P/E ratings of 16.5 and 15.6 for the years concluding March 2015 and 2016 correspondingly. These multiples are marginally above the watermark of 15 or below — which is generally considered reasonable value for money — although they beat a forward average of 22 for entire gas, water and multiutilities sector.

Price to Earnings to Growth (PEG) Ratio

A backdrop of solid investment at home and abroad look set to underpin solid long-term earnings growth, but in the meantime the business is expected to punch an 18% earnings decline this year. A modest 6% rebound is anticipated in the following 12-month period, however.

This year’s predicted earnings dip does not create a valid PEG multiple. Next year’s projection produces a readout of 2.7, even though this figure is comfortably ahead of the value yardstick of 1 or below.

Market to Book Ratio

National Grid currently sports a book value of £11.9bn once total liabilities are subtracted from total assets. This forges a book value of £3.20 per share, meaning that the power play currently carries a market to book ratio of 2.8. A figure around or below 1 is widely considered exceptional value for money.

Dividend Yield

Like all utilities companies, National Grid is a magnet for investors seeking access to chunky dividend growth. The business has kept payouts rolling even as earnings have wavered, and National Grid is expected to keep its progressive policy on track at least in the medium term — last year’s 40.03p per share payout is anticipated to rise to 43.4p in fiscal 2015 and 44.8p the following year.

These prospective payouts create meaty yields of 4.9% and 5% respectively, far ahead of a forward average of 3.2% for the FTSE 100 and beating a corresponding yield of 4.3% for the rest of the gas, water and multiutilities space.

An Electrifying Value Pick

In my opinion National Grid is an excellent selection for those seeking access to a top-notch utilities stock. Not only does its vertically-integrated operations mean that it is not exposed to the same price curb pressures of the country’s other listed electricity companies, but the business also offers above-average value for both growth and income hunters. And for long-term investors I believe that the firm’s ongoing capex plans on both sides of Atlantic should keep earnings and dividends moving steadily higher in coming years.

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Royston does not own shares in National Grid.