Right now I’m looking at some of the most popular companies in the FTSE 100 to try and establish whether or not they have the potential to return to historic highs.
Today I’m looking at National Grid(LSE: NG) (NYSE: NGG.US) to ascertain if its share price can return to 836p.
Initial catalyst
Of course, before we can establish whether or not National Grid can return to 863p, we need to figure out what caused it to reach this level in the first place. It would appear that National Grid reached this all-time high during May of last year, as investors sought out rock-solid defensive stocks, amid the uncertain global economic environment. In addition, this peak of 863p was the end of a great run for National Grid, which saw its share price by an impressive 20% in the five months preceding this high.
Nevertheless, since reaching 836p National Grid has fallen back along with its peers in the wider utility sector, after Labour Leader Ed Miliband suggested that he would cap utility prices if elected in 2015.
But can National Grid return to its former glory?
However, despite these comments from Mr Miliband, I feel that National Grid is well positioned to ride out any further political uncertainty. Indeed, due to National Grid’s dominance over the UK’s electricity distribution and supply network, it appears as if regulators are willing to let the company exercise a certain degree of control over the market.
For example, the energy regulator Ofgem and National Grid have recently been working together to alleviate the risk of power shortages within the UK. Around 20% of Britain’s power plants are set to close within the next few years and this is going to put a strain on the country’s power grid. So, National Grid has been given additional powers, including the ability to recommission mothballed gas power stations to help keep the lights on.
What’s more, Ofgem has recognised that National Grid provides an essential service to the UK, so the regulator put pricing controls in place last year that favoured the company. As a result, it is likely that National Grid will be allowed to continue raising prices every year, at least in line with inflation, which is likely to push earnings higher and drive a return to 836p.
In addition, National Grid is investing billions developing its business within the United States and this growth coupled with rising prices here within the UK should boost profits.
Foolish summary
Overall, National Grid’s dominant position here within the UK and growth overseas lead me to conclude the company can stage a return to 836p.
