The National Network (LSE:NG.) Shares fell around 3% on Wednesday (June 12) after the energy infrastructure giant announced that 91% of shares had been taken in its £7 billion rights issue.
The FTSE100 The company said the increase was part of a wider effort to invest £60 billion over the next five years, double the company’s investment over the last five years.
So where will the stock end the year? Spoiler alert: That’s not easy to predict.
New shares
National Grid is conducting a rights issue, offering existing shareholders seven new shares for every 24 shares held, at a price of 645 pence per new share, a significant discount to the current share price.
The move will involve issuing 1.1 billion new shares, increasing the total number of shares by 29.2 percent. Shareholders will be able to buy new shares at a reduced price, diluting the stock value but providing the company with the capital it needs.
91% of the new shares will be taken over by existing shareholders, Barclays And JPMorgan Chase & Co. must find buyers for the shares or take them over themselves.
The theoretical ex-works price of the share is approximately 970 pence. This is calculated by adding the current market capitalisation and the amount of funds raised and then dividing by the total number of shares after the rights issue.
Investors’ concerns
However, the practical aspect of the rights issue is not the only factor affecting the share price. Firstly, many analysts consider the rights issue a bold move given the lack of demand for UK shares.
Moreover, it is a question of timing. With an election looming and Ofgem’s initial assessment of returns from the RIIO-T3 price control period, it did not seem the best time to raise funds.
In addition, it is a highly indebted company that is announcing a major investment program. This will deter some investors.
However, Bank of America said that the market appears to be underestimating the opportunity and referred to “the significant reduction in balance sheet risk and improved earnings transparency“.
The average price target for the stock is currently 1,122 pence, but it is falling rapidly as analysts lower their price target following the rights issue.
The conclusion
Personally, I am cautious about National Grid shares. Stocks that are in a transition phase – in this case a £60 billion investment programme – tend to trade at a discount. Just look at BT.
National Grid shares currently trade at 12.3 times forward earnings, falling to 11.6 times by 2025 and 10.6 times in 2026. The current dividend yield is 6.6%, but will fall after the rights issue.
None of these numbers are daunting and it’s great to see a company with improving earnings prospects.
So where will National Grid stock be at the end of 2024? Well, that was a tough question to ask myself. It’s hard to say given the variables. My suspicion would be that the price will be well below the average price target.
The post Here’s where I think National Grid’s share price will be in 2024 appeared first on The Motley Fool UK.
further reading
JPMorgan Chase is a promotional partner of The Ascent, a Motley Fool company. James Fox has a position in Barclays Plc. The Motley Fool UK has recommended Barclays Plc. The views expressed on companies mentioned in this article are those of the author and may therefore differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners, and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.
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