We have reduced our fair value estimate to 990p a share from £10.50 due to higher capital expenditure estimates and lower earnings estimates for the US regulated activities because of higher operating costs.
We downgraded our moat rating – which indicates that the company has a slender competitive advantage - from narrow to none on our lack of confidence that National Grid can consistently realise returns on capital greater than its cost of capital. The historical rate-setting structures – which determine how much utilities can charge customers - in the US are a key drag on return on invested capital (ROIC) going forward, especially as National Grid invests heavily in the US during the next three to four years. In the US, National Grid has struggled to keep pace with its allowed returns and regularly earns 2-to-3% less than its UK operations.
Perhaps they're too hung up on the US side of the business.