UBS has kept a 'sell' rating on National Grid, the FTSE 100 electricity and gas network operator, ahead of its half-year results on 5 November, setting a price target of 1,110p against a current share price of 1,218p.
The bank's analysts expect record first-half underlying earnings before interest and tax of £2.624 billion, up from £2.292 billion a year earlier, driven entirely by UK electricity transmission.
Higher allowed returns, semi-nominal regulatory mechanisms and increased fast-money payments are all pushing earnings higher in the UK network business.
UBS lifted its full-year earnings per share forecast to 91p from 89p after National Grid flagged stronger interconnector profits and two capital markets transactions through its NG Ventures division.
The bank regards those gains as one-offs and warns current-year EPS growth of 17% is unlikely to be repeated.
Analysts will be watching closely for any update on the company's £31 billion UK electricity transmission capital expenditure plan, particularly progress on Wave 1 projects such as the 2.2-kilometre Grain to Tilbury tunnel.
A National Audit Office report recently found that 64 of 88 projects tied to the government's Clean Power 2030 target are at an early stage of development and behind schedule.
UBS flagged growing concern over National Grid's $1.75 billion contribution to Joulent, a captive power venture in Texas that will not generate cash until the 2030s.
The company will own just 35% of Joulent and the project adds to its Scope 1 emissions, where generation assets already account for more than 40% of group greenhouse gas output.
On valuation, UBS calculates the group trades at around a 45% premium to its regulated asset base, with the US business implying a price-to-earnings multiple of 19 times for the year to March 2028, at the top of the peer range.
