Broker snap: Nomura sees no upside for National Grid

19th Nov 2010 13:16

Despite generous valuations, Nomura downgrades National Grid (NG) to 'neutral' as the broker fails to see any upside potential to the current share price.The broker has revised its target price to 570p from 525p, still less than the current share price of 575p.NG's recent "outperformance" - which has seen shares rise 16% (13% versus the sector) since 1 June - has been helped by the "rally in long-term government debt, given the yield proxy nature of NG and the implied lower real weighted-average cost of capital" says analyst John Musk."We suggest that recent weakening in treasuries may make it harder for this outperformance to continue", Musk added.Furthermore, the US operating environment remains challenging, says Musk, with return on equity remaining below target and a turnaround that is expected to take some time."We like the growth options and regulatory environment for NG in the UK...but believe we have fully captured the upside potential in our premiums to RAB of 10-17%".