Broker snap: National Grid upgraded after Ofgem move

4th Apr 2011 12:23

RBS upgrades power and gas grid operator National Grid to a 'hold', from 'sell', now that Ofgem has sweetened its initial approach to price regulation.The broker originally identified £650m of cashflow at risk from the 'RIIO' (performance-based model) UK price controls, but it notes that Ofgem's latest 'Decision on Strategy' proposal makes half of this amount safe."Ofgem no longer proposes to lengthen electric transmission depreciation lives (worth £200m), is targeting a higher average return on equity range (£50m) and is front-end loading gas distribution depreciation (£70m)," said analyst Iain Turner.With now only a 10% hit to operating profit, the broker ups its target price from 500p to 500p.BC