National Grid Raises Guidance on High Inflation; Shares Rich

No-moat National Grid has upped its fiscal 2022 guidance, saying that underlying EPS growth should be modestly higher than the "significantly ahead" of 5%-7% that it forecast at half-year results last November. Key to that is high inflation, as revenue of the U.K. electricity networks is indexed. Otherwise, the company said the underlying operating profit of its U.S. networks and National Grid Ventures is in line with previous guidance. On the downside, the fiscal 2022 underlying tax rate will be around 25% because of an additional tax charge related to the impact of upcoming tax rate hikes on the deferred tax liabilities. All said, we expect to tweak upward our profitability estimates for the U.K. networks on inflation in the short term, but the impact on our long-term estimates and valuation will be limited, so we maintain our GBX 950 fair value estimate. The indexation of U.K. networks revenue and the dividend is an enviable feature in the current inflationary environment. However, this is more than priced in with a 2022 price/earnings of 19.8.