Nationwide Grid (LSE: NG) shares are near their 23 April post-rights subject excessive of £11.03.

This concerned the precise to purchase seven shares for each 24 held and ended on 10 June final yr. By then, the multinational electrical energy and fuel utility large had secured £7bn in new funding.

The present excessive share price could point out that little worth stays within the inventory. However it might outcome from the enterprise being price extra now than it was earlier than.

To search out out which is true, I took a deep dive into enterprise and ran the important thing numbers.

The most recent efficiency figures

The agency’s full 2024/25 fiscal yr outcomes noticed working revenue bounce 10% to £4.934bn. Revenue earlier than tax leapt 20% to £3.65bn. And earnings per share (EPS) elevated 8% to 60p.

On the bills aspect, capital funding geared to government-regulated infrastructure enlargement rose 20% to £9.847bn.

That is a part of Nationwide Grid’s plans to finish round £60bn of such funding within the subsequent 5 years.

Trying forward, it forecasts an EPS compound annual development price of 6%-8% to fiscal yr 2028/29. It’s earnings that drive a agency’s share price and dividend greater over time.

Are the shares undervalued?

Nationwide Grid at present trades at a price-to-earnings ratio of 18.9 in comparison with its rivals’ common of 13.5. These include E.ON at 8.9, Engie at 11.3, Enel at 12, and Iberdrola at 21.7.

So the UK energy agency is considerably overvalued on this measure.

The identical is true of its 2.9 price-to-sales ratio towards its friends’ common of 1.1.

Nonetheless, on the price-to-book ratio it’s undervalued at 1.4 in comparison with its rivals’ common of two.

I ran a reduced money movement analysis to resolve the valuation. This exhibits Nationwide Grid shares are 23% undervalued at their current £10.89 price.

Subsequently, their truthful worth is £14.14, though varied market forces may transfer them decrease or greater.

The dividend has been lower

One of many earlier benefits for homeowners of Nationwide Grid shares was its good yield. In 2023 and 2024 this averaged round 5.5%.

Nonetheless, within the newest outcomes the full-year dividend was simply 42.72p in comparison with 2024’s 58.52p. This provides a yield on he present share price of simply 4.3%.

Furthermore, analysts forecast this may stay about the identical within the subsequent three years.

Lowering dividends is a purple flag for me in my expertise as a former senior funding financial institution dealer and longtime non-public investor.

Are different dangers rising too?

Authorities-mandated spending on infrastructure is nothing new for giant nationwide energy corporations. However £60bn over 5 years appears loads to me, given Nationwide Grid’s already sizeable debt.

Particularly, it has a internet debt-to-equity ratio of 5.9 in comparison with the three or much less thought of wholesome.

Given this debt danger, I don’t suppose the 23% undervaluation on the share price makes Nationwide Grid shares price shopping for for me.