Proactive Investors - National Grid (LON:NG) is the top “bond proxy” pick among the UK utilities, according to JP Morgan, and well ahead of the water groups on a stronger growth profile and greater regulatory clarity.
The grid operator currently yields 5.2% for 2024 against 4.6% for the water groups.
That is even though National Grid has higher returns that automatically adjust to offset higher funding costs; has more visible and financeable growth; and is under no scrutiny on environmental and sewage performance.
Added together, these plusses make National Grid’s the most attractive investment case for investors "looking to position more defensively within the sector in coming months”, says the US bank.
In addition, the balance sheet is robust enough to invest up to £20bn or 50% more on capital expenditure than currently projected with no risks to the credit rating.
“Our bull case/blue sky scenarios imply more than 30%/80% upside, respectively.
“Shares have been strong yet-to-date yet we expect outperformance should continue given regulatory visibility and a solid balance sheet. “
“Overweight” is the rating with a target price of 1,275p or 14% upside on today’s 1119.5p.