Executive Summary / Key Takeaways

• National Grid is executing a strategic pivot towards a pure-play networks business, committing to an unprecedented £60 billion capital investment from FY2025-2029 to capitalize on the accelerating energy transition in the UK and US Northeast.
• The company's robust regulated business model, underpinned by strong regulatory protections and advanced operational capabilities in grid management and large-scale project delivery, provides stability and predictable growth amidst macroeconomic turbulence.
• Despite a 2% increase in underlying EPS to 73.3p in FY2025 due to a higher share count, National Grid projects 6-8% EPS CAGR from this baseline through FY2029, driven by asset growth and supported by a comprehensive financing strategy including a £7 billion equity raise.
• Key operational achievements include record £9.8 billion capital investment in FY2025, significant progress on ASTI projects, and new favorable rate agreements in US jurisdictions, though challenges like Storm Darragh impacts and offshore wind policy uncertainty persist.
• The investment thesis hinges on National Grid's ability to leverage its established network and regulatory expertise to deliver critical infrastructure for decarbonization and increasing demand (e.g., data centers), while managing execution risks and competitive dynamics.

The Electrification Imperative: National Grid's Strategic Reorientation

The global energy landscape is undergoing a profound transformation, driven by the urgent need for decarbonization, enhanced energy security, and the relentless march of electrification. National Grid plc, founded in 1990, has strategically repositioned itself to be at the forefront of this shift, evolving into a preeminent pure-play networks business. This strategic pivot, initiated around 2021, involved significant divestitures, including the sale of its Rhode Island business and a majority stake in its UK Gas Transmission business, culminating in the sale of the remaining 20% stake in September 2024. Concurrently, the company bolstered its electricity focus with the acquisition of UK Electricity Distribution in 2021 and the establishment of a dedicated Strategic Infrastructure Business Unit in 2022 to manage 17 major Accelerated Strategic Transmission Investment (ASTI) projects in the UK.

This reorientation aligns with powerful industry trends. The energy transition is accelerating, with coal's contribution to UK generation plummeting from 40% to 1% over the last decade, and nearly half of the electricity in the UK and US Northeast now sourced from zero-carbon origins. A critical market driver is the burgeoning demand from artificial intelligence and data centers, which are creating unprecedented load growth on networks. In the UK, National Grid's pipeline includes 15 gigawatts of signed data center contracts, with some individual facilities demanding 200 megawatts—a load greater than most major UK cities. Similarly, in New York, the company supports Micron (MU)'s $100 billion microchip manufacturing investment, which could require power equivalent to 850,000 homes. These trends underscore the immense and growing need for robust, modernized electricity infrastructure, positioning National Grid's core business for sustained demand.

Technological Edge in Grid Modernization and Project Delivery

National Grid's competitive advantage is not rooted in proprietary component manufacturing, but rather in its sophisticated capabilities for large-scale infrastructure project delivery, advanced grid management, and strategic supply chain orchestration. The company's expertise in High Voltage Direct Current (HVDC) technology is exemplified by the successful completion of the Viking Link interconnector to Denmark, the world's longest onshore and subsea HVDC cable at 765 kilometers. This project, delivered within budget and ahead of schedule, showcases National Grid's ability to execute complex, multi-jurisdictional infrastructure. The company's interconnector portfolio now stands at nearly 8 gigawatts, representing approximately 80% of the interconnector market, a significant competitive moat.

Further technological differentiation comes from its advanced Distribution System Operator (DSO) functions in UK Electricity Distribution. This segment operates the largest flexibility market among all DSOs, which tangibly avoided over 200 gigawatt hours of renewable generation curtailment in FY2025, directly lowering costs for consumers and enhancing grid efficiency. In the US, the Smart Path Connect project in New York, rebuilding over 100 miles of transmission lines to integrate large-scale renewable generation, is halfway to completion and on track to energize by December 2025, demonstrating effective deployment of modern transmission technologies.

National Grid is also strategically addressing supply chain constraints through innovative procurement. The company has secured delivery mechanisms for over two-thirds of its £60 billion capital investment, including contracts for 12 onshore and two offshore ASTI projects. The £59 billion HVDC framework agreement, expected to be finalized by early 2026, is crucial for securing Tier 1 supplier contracts for all 17 ASTI projects and critical equipment like switchgear and transformers. This proactive approach to supply chain management, supported by Ofgem's advanced procurement mechanism, provides a significant operational advantage in a globally competitive environment for resources and skilled labor. These capabilities collectively contribute to National Grid's competitive moat by enabling efficient, reliable, and large-scale integration of new energy sources and managing increasing demand, directly supporting its financial performance through regulated asset growth and operational outperformance.

Financial Performance and Liquidity: Fueling Growth

National Grid's financial performance in FY2025 reflects a strong start to its ambitious five-year plan. The company reported underlying operating profit of £5.4 billion, a 12% increase at constant currency, driven by robust operational performance, increased regulated revenues, and flat controllable costs. Underlying earnings per share (EPS) reached 73.3p, a 2% increase year-over-year, slightly exceeding guidance despite the dilutive impact of a higher share count following a £7 billion equity raise. The group's return on equity (ROE) stood at 9%, benefiting from regulated earnings growth.

Capital investment reached a record £9.8 billion in FY2025, a 20% increase from the prior year, fueling 10.5% regulated asset growth. This investment is broadly split 50-50 between the UK and US, with 85% aligned to green investment. Cash generated from continuing operations was £7 billion. The company's net debt decreased by £1.7 billion to £41.4 billion, aided by proceeds from the ESO and Gas Transmission stake sales. National Grid's comprehensive financing strategy, including the £7 billion equity raise, aims to provide funding clarity until at least 2031, supporting its investment-grade credit rating with FFO to debt above 10% and RCF to debt above 7%. The company also hedges approximately 70% of its US gross assets with dollar-denominated debt to mitigate exchange rate volatility.

Profitability metrics for NGGTF show a TTM Gross Profit Margin of 25.93%, Operating Profit Margin of 26.31%, and Net Profit Margin of 15.79%. The EBITDA Margin is 39.56%. While these figures reflect a stable, regulated business, they are generally lower than those of more growth-oriented competitors like NextEra Energy , which often exhibits higher revenue growth rates and operating margins due to its aggressive focus on renewable energy development.

National Grid's Debt/Equity ratio stands at 1.28, reflecting the capital-intensive nature of its business, but its strong cash flow generation (TTM Operating Cash Flow of £6.81 billion) provides a solid foundation for debt servicing.

Competitive Positioning and Strategic Responses

National Grid operates within a highly regulated utility sector, where its extensive licenses and established network effects serve as significant competitive advantages. These regulatory licenses provide pricing power and predictable revenue streams, contributing to consistent profitability. The company's vast infrastructure fosters customer loyalty and enables robust integration across its diverse operations. This positions National Grid strongly against competitors like Duke Energy (DUK) and Southern Company (SO) in terms of operational reliability and regulatory expertise in its core markets.

However, National Grid faces competitive pressures, particularly from more agile and technologically specialized players. NextEra Energy (NEE), with its pioneering role in renewables and advanced use of data and AI for grid management, demonstrates faster expansion in high-demand areas like data centers. MYR Group (MYRG), specializing in electrical construction and maintenance, offers faster deployment capabilities for new projects. While National Grid is investing heavily in modernization and digital capabilities, its dependence on regulated markets can sometimes lead to slower innovation compared to competitors with more flexible business models.

National Grid's strategic response involves leveraging its scale and regulatory relationships to drive large-scale, long-term projects. The company's focus on anticipatory investments, such as the £2 billion electricity sector modernization plan in Massachusetts, aims to proactively address future demand and decarbonization goals. Its advocacy for planning reforms and a transformed connections process in the UK directly addresses bottlenecks that could otherwise impede its investment program and allow competitors to gain an edge. By securing supply chain capacity through advanced procurement mechanisms, National Grid mitigates risks that could delay project delivery, a vulnerability that could be exploited by more agile construction-focused competitors.

Outlook, Guidance, and Risks

National Grid's outlook is anchored by its ambitious five-year financial framework (FY2025-FY2029), projecting £60 billion in capital investment, 10% annual asset growth, and 6-8% underlying EPS CAGR from an FY2025 baseline of 73.3p. For FY2026, capital investment is expected to exceed £11 billion, driving approximately 11% asset growth, though EPS growth is anticipated at the lower end of the 6-8% range due to a slightly weaker US dollar. Net debt is expected to increase by over £6 billion in FY2026, excluding asset disposal proceeds. The company aims to grow its dividend in line with UK CPIH inflation, applied to a rebased dividend per share.

Key regulatory milestones include Ofgem's draft determination for the £35 billion RIIO-T3 business plan in June 2026, with a final determination expected in December 2026. National Grid's RIIO-T3 plan, which includes £23 billion for UK Electricity Transmission, is designed to meet increasing demand, including the 15 GW of data center requests in its pipeline. Management expects a nominal debt approach in RIIO-T3, which would accelerate cash recovery.

Despite this clear roadmap, several risks warrant investor attention. The turbulent economic and geopolitical environment, while mitigated by National Grid's regulated model, could still impact financing costs and operational expenses. Regulatory outcomes, particularly the final RIIO-T3 determination, are crucial; National Grid advocates for an allowed return at the top end of Ofgem's range to attract necessary capital. Operational challenges, such as the impact of severe weather events like Storm Darragh on UK Electricity Distribution's ROE, or unforeseen incidents like the North Hyde substation fire, highlight the importance of network resilience and safety protocols. Furthermore, policy uncertainty in the US offshore wind sector, as demonstrated by the impairment of the Community Offshore Wind joint venture, underscores the need for stable policy frameworks to support large-scale clean energy projects. The ability to secure sufficient supply chain capacity and green skills in a competitive global market remains a critical execution risk for the £60 billion investment program.

Conclusion

National Grid stands at a pivotal juncture, transforming into a focused pure-play networks business poised to deliver the critical infrastructure underpinning the global energy transition. The company's commitment to a £60 billion capital investment program through FY2029, driving double-digit asset growth and robust EPS expansion, firmly establishes its growth narrative. While the investment proposition now tilts more towards growth than historical yield, the inflation-protected dividend remains an attractive component for discerning investors.

National Grid's competitive strength lies in its deep regulatory expertise, extensive network, and advanced capabilities in managing complex, large-scale projects and modernizing grids. These foundational advantages, coupled with strategic initiatives to address supply chain and planning bottlenecks, position the company to capitalize on the surging demand for clean energy and digital infrastructure. While external factors like regulatory decisions, macroeconomic volatility, and competitive pressures from agile innovators present ongoing challenges, National Grid's disciplined execution and unwavering focus on its core mission to build secure, affordable, and clean energy networks for the future underpin a compelling long-term investment thesis.