Since the unveiling of National Grid’s (LSE:NG.) £60bn overhaul project in May last year, the share price has delivered some robust returns. In fact, the energy infrastructure stock is up by around 15% so far. Lately however, analysts have started getting bullish about incoming growth. So much so that price targets are actually on the rise, along with Buy recommendations from institutional analysts.
So, what’s driving this new wave of optimism? And how high can the National Grid share price climb over the next 12 months?
Changing tactics
As a quick reminder, last year management announced a pretty massive restructuring of its business. The firm has long struggled to deliver meaningful growth, and with a steadily weakening balance sheet, a change of strategy was needed.
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Given this involved diluting equity shareholders by £7bn to raise capital, the stock unsurprisingly plummeted on the news. However, volatility aside, the move has improved the state of the balance sheet, with total debt down by over £2bn between March and September last year. And with dividends taking a haircut, the extra cash is also earmarked for further debt reduction moving forward.
However, in December, the company released more details of its business plan for moving forward. Some of the key highlights that seem to have grabbed investor attention are a doubling of UK electrical transfer capacity and 35GW of energy storage for renewables. Apart from reducing emissions by 50% compared to 2019 levels, the modernisation of Britain’s energy grid could lower maintenance expenses moving forward, resulting in superior free cash flow generation.
What does this mean for the shares?
It may still be a while before growth materialises for shareholders. After all, revamping infrastructure doesn’t happen overnight. Yet analysts have started recognising the long-term potential of this enterprise. In January 2025, the stock was rated as a Buy or Outperform by 11 analysts. Skip ahead to March, this has increased to 16 with no one marking the shares down as a Sell.
At the same time, share price forecasts for National Grid have also been updated, with numerous institutions raising their expectations, like Bernstein, which increased its price target from 1,040p to 1,120p. Overall, the average consensus indicates that National Grid shares could rise to 1,145p by this time next year. That’s roughly the equivalent of an 18% gain. And when paired with a 4.7% rebased dividend yield, buying the shares today could enable investors to reap market-beating returns over the next 12 months.
Of course, nothing is set in stone. Large infrastructure projects have a habit of getting delayed with spiralling costs if mismanaged. And if National Grid can’t deliver on its growth promises, the share price could remain stagnant for years to come.
With this risk in mind, I’m staying on the sidelines for now. At least until more tangible progress has emerged.
