One of the traditional strengths of companies in the utility sector is that they are dull and dependable. Unfortunately, the aftermath of the COVID-19 has left few sectors and even fewer companies unaffected, whether positively or negatively.
Earlier this year there were signs that things were going to get stirred up for the National Grid share price. This was going to be both a fundamental and technical basis, and underlined by the way that the stock fell from a 1,073p peak in February to a 789p floor in March in the wake of the first lockdown.
The 25% decline was only slightly less than the one third plus declines for stocks in most sectors, and clearly disappointing for those on board National Grid shares for perceived defensive qualities.
While the stock has retraced to the middle of the range near 950p since the spring, the newsflow since then has underlined the way that the sell off earlier this year was justifiable, if only on the basis of the various headwinds affecting the National Grid share price.
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National Grid shares debt level
Perhaps the first point to note is that with net debt at £30.1bn and set to rise to £31.6bn by the second half of the year, we are looking at a company which is swimming through treacle in terms of its cash position.
This point was emphasised in the wake of the latest first half underlying operating profit which fell 12% to £1.1bn.The excuse for this was said to be the impact of COVID-19 related costs, expected to hit £400m for the full year.
The fundamental elephant in the room
However, tough as the present environment has been, it may be that there is a fundamental elephant in the room. This aspect makes such near term earnings and debt issues as relatively insignificant.
The risk for the National Grid share price is that in order for the UK Government to achieve its net carbon neutral goals it would break up the utility. The problem is the conflict of interest for National Grid in being the Electricity System Operator, as well as owning the network.
The question is whether in order to get to the carbon neutral destination, a more drastic action than having legally separated the ESO three years ago is seen as enough?
National Grid shares £400m profits miss
Perhaps more important to focus on though is the £400m miss on profits this year, and rather than a breakup, a lower allowed profits return for National Grid shares would be far more damaging. Trumping all of these factors though, may be how National Grid decides to treat shareholders.
In a year when one of the worst aspects has not just been National Grid share price falls, but dividend payouts being cut, investors are most likely to focus on how much National Grid shares yield.
Having raised the payout on a full year basis, and being likely to repeat the gesture at the interim stage as well, it may be that holders of NG shares remain loyal until the big picture issues surrounding the company are finally resolved.
How to trade National Grid shares
Open a live or demo account with ATFX to get started today. Trade shares on leverage, take up a long or short position when trading with CFDs and make potential gains from price movements.
1. Register for an account or log in to your existing account
2. Open MT4 either on your desktop or mobile
3. Search for National Grid shares in the market watch or symbols window
4. Choose your position size
5. Hit buy or sell, and then confirm the trade
NG shares daily chart
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