Stock market

15% off in one week! What happened to National Grid’s share price?

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It really shouldn’t happen National Grid (LSE: NG) share price, but it is. gave FTSE 100 Shares of the transmission giant crashed 14.81 percent last week. Isn’t it supposed to be the most solid stock on the FTSE 100? Not yet.

I once described the National Grid A. “Buy Smartly”. However, no stock is without risks and I had one concern. It was saddled with debt but had to invest billions in the UK’s energy network, particularly electricity to meet net-zero targets.

Stock shock

Last Thursday (May 23), the threat came to light when the board announced a £7bn equity raise through a rights issue. It will support £60bn of investment over the five years to March 2029, doubling spending over the previous five years. Its shares fell more than 10 percent on Thursday and fell further on Friday. Over 12 months, the stock is down 11.91%.

National Grid still came with a dividend, which is the main reason people buy stocks. Investors received 58.52p per share in 2023, up 5.55% from last year. Analysts forecast a dividend yield of 6.17% in 2025, rising to 6.48% for 2026.

That’s higher than today but I’m not entirely convinced by these figures, given that the dividend will be re-basised, the same amount spread among more shares due to this equity increase.

Unsurprisingly, National Grid’s shares have suddenly become cheaper relative to them, trading at 13.2 times forward earnings. He was swinging 15 to 16 times for Unix.

Analysts forecast net debt to rise above £48.01bn in 2025, then rise again to £53.56bn in 2026. This is a lot more than today’s market cap of 42.75bn. They are more than 10 times the group’s annual profit, which rose 6% to £4.8bn in the year to 31 March.

Pure recovery game?

A lot now depends on the board’s turnaround plan. It has the power to shrink that debt with disposals, announcing plans to sell its UK LNG business, GreenLNG, and US marine business to National Grid Renewables.

The Board believes that converting the Group into a “Pure Play Network Business” will increase the group’s assets by 10% a year, taking them to £100bn by 2029.

I never bought National Grid shares, ironically I thought they were a bit boring. So in that regard, I’ve dodged a bullet. On the other hand, the equity increase allows investors to buy seven new shares for every 24 and pay just 645p for each of them. That’s a 30% discount to today’s price of 897.4p per share.

The group’s heavy investment can drive up share prices over the long term, which investors typically don’t expect from a utility. National Grid still has safe haven characteristics, relatively low borrowing costs and regulated revenues as a monopoly.

If I owned any of the shares I would hold my nose and buy more at 645p. As I do not, I will sit it out. I don’t like paying close to 900p right now. If I’m going to hold a risky FTSE 100 dividend stock, I want less debt and more potential for share price appreciation than I can see here.

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