Broker snap: National Grid awaits Ofgem update

7th Mar 2011 10:43

In spite of RBS raising earnings forecasts for power and gas grid operator National Grid, the broker continues to worry about the path of UK regulation and awaits an Ofgem announcement later this month."Favourable weather in the past year - a cold winter and warm summer - has boosted demand for gas and electricity, meaning National Grid has been able to recover £200m of cumulative under-recovery via its regulated tariffs," according to analyst Iain Turner.RBS now forecasts 2011 earnings per share (EPS) of 49.5p, up from 46.6p, "thanks to the recovery of the under-recovery". 2012 EPS estimates are raised to 48p, from 45p.However, the broker is cautious about Ofgem's announcement on their evolving thinking on the 'RIIO' (performance based model) UK price controls that affect 60% of National Grid's profitability. Poor operational performance could result in a fine being imposed by the regulator.RBS maintains the 500p target price and 'sell' rating.