Intrinsic value of National Grid ADR - NGG

Previous Close

$62.84

  Intrinsic Value

$89.35

stock screener

  Rating & Target

buy

+42%

  Value-price divergence*

-29%

Previous close

$62.84

 
Intrinsic value

$89.35

 
Up/down potential

+42%

 
Rating

buy

 
Value-price divergence*

-29%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of NGG stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 47.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  13.80
  13.80
  12.92
  12.13
  11.42
  10.77
  10.20
  9.68
  9.21
  8.79
  8.41
  8.07
  7.76
  7.49
  7.24
  7.01
  6.81
  6.63
  6.47
  6.32
  6.19
  6.07
  5.96
  5.87
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
Revenue, $m
  18,278
  20,800
  23,488
  26,336
  29,343
  32,504
  35,818
  39,284
  42,902
  46,672
  50,597
  54,679
  58,923
  63,334
  67,917
  72,680
  77,631
  82,779
  88,133
  93,703
  99,502
  105,542
  111,835
  118,396
  125,240
  132,381
  139,836
  147,623
  155,759
  164,265
  173,159
Variable operating expenses, $m
 
  15,623
  17,546
  19,584
  21,734
  23,996
  26,367
  28,847
  31,435
  34,133
  36,941
  39,121
  42,157
  45,313
  48,592
  52,000
  55,542
  59,224
  63,055
  67,040
  71,189
  75,510
  80,013
  84,707
  89,603
  94,712
  100,046
  105,617
  111,439
  117,524
  123,887
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  14,378
  15,623
  17,546
  19,584
  21,734
  23,996
  26,367
  28,847
  31,435
  34,133
  36,941
  39,121
  42,157
  45,313
  48,592
  52,000
  55,542
  59,224
  63,055
  67,040
  71,189
  75,510
  80,013
  84,707
  89,603
  94,712
  100,046
  105,617
  111,439
  117,524
  123,887
Operating income, $m
  3,900
  5,178
  5,942
  6,753
  7,608
  8,508
  9,451
  10,437
  11,466
  12,539
  13,656
  15,559
  16,766
  18,021
  19,326
  20,681
  22,090
  23,554
  25,078
  26,663
  28,313
  30,032
  31,822
  33,689
  35,636
  37,668
  39,790
  42,006
  44,321
  46,741
  49,272
EBITDA, $m
  5,700
  7,554
  8,530
  9,565
  10,657
  11,805
  13,009
  14,267
  15,581
  16,951
  18,376
  19,859
  21,400
  23,002
  24,667
  26,396
  28,195
  30,064
  32,008
  34,032
  36,138
  38,331
  40,617
  43,000
  45,485
  48,079
  50,786
  53,614
  56,569
  59,658
  62,889
Interest expense (income), $m
  1,020
  985
  1,216
  1,466
  1,730
  2,010
  2,303
  2,611
  2,933
  3,269
  3,620
  3,984
  4,363
  4,758
  5,167
  5,593
  6,036
  6,496
  6,974
  7,471
  7,989
  8,527
  9,089
  9,673
  10,283
  10,918
  11,582
  12,274
  12,998
  13,754
  14,544
Earnings before tax, $m
  2,655
  4,193
  4,726
  5,287
  5,878
  6,498
  7,148
  7,826
  8,533
  9,270
  10,037
  11,575
  12,403
  13,264
  14,158
  15,088
  16,054
  17,059
  18,104
  19,192
  20,324
  21,504
  22,734
  24,016
  25,354
  26,750
  28,208
  29,731
  31,323
  32,987
  34,728
Tax expense, $m
  455
  1,132
  1,276
  1,428
  1,587
  1,755
  1,930
  2,113
  2,304
  2,503
  2,710
  3,125
  3,349
  3,581
  3,823
  4,074
  4,335
  4,606
  4,888
  5,182
  5,488
  5,806
  6,138
  6,484
  6,846
  7,222
  7,616
  8,027
  8,457
  8,907
  9,377
Net income, $m
  9,476
  3,061
  3,450
  3,860
  4,291
  4,744
  5,218
  5,713
  6,229
  6,767
  7,327
  8,450
  9,054
  9,683
  10,335
  11,014
  11,719
  12,453
  13,216
  14,010
  14,837
  15,698
  16,596
  17,532
  18,508
  19,527
  20,592
  21,704
  22,866
  24,081
  25,351

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  12,011
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  80,042
  77,325
  87,315
  97,905
  109,081
  120,833
  133,153
  146,038
  159,487
  173,503
  188,093
  203,269
  219,046
  235,442
  252,481
  270,188
  288,592
  307,728
  327,631
  348,339
  369,897
  392,350
  415,745
  440,135
  465,575
  492,121
  519,836
  548,784
  579,031
  610,650
  643,713
Adjusted assets (=assets-cash), $m
  68,031
  77,325
  87,315
  97,905
  109,081
  120,833
  133,153
  146,038
  159,487
  173,503
  188,093
  203,269
  219,046
  235,442
  252,481
  270,188
  288,592
  307,728
  327,631
  348,339
  369,897
  392,350
  415,745
  440,135
  465,575
  492,121
  519,836
  548,784
  579,031
  610,650
  643,713
Revenue / Adjusted assets
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
Average production assets, $m
  27,459
  31,242
  35,279
  39,557
  44,073
  48,821
  53,799
  59,005
  64,439
  70,102
  75,997
  82,128
  88,503
  95,128
  102,012
  109,166
  116,602
  124,334
  132,375
  140,742
  149,453
  158,524
  167,977
  177,831
  188,110
  198,836
  210,034
  221,730
  233,951
  246,726
  260,085
Working capital, $m
  3,724
  -1,830
  -2,067
  -2,318
  -2,582
  -2,860
  -3,152
  -3,457
  -3,775
  -4,107
  -4,453
  -4,812
  -5,185
  -5,573
  -5,977
  -6,396
  -6,832
  -7,285
  -7,756
  -8,246
  -8,756
  -9,288
  -9,842
  -10,419
  -11,021
  -11,649
  -12,306
  -12,991
  -13,707
  -14,455
  -15,238
Total debt, $m
  34,815
  34,744
  41,877
  49,438
  57,418
  65,809
  74,605
  83,805
  93,408
  103,415
  113,832
  124,668
  135,933
  147,640
  159,805
  172,448
  185,589
  199,252
  213,462
  228,248
  243,641
  259,672
  276,376
  293,790
  311,954
  330,909
  350,697
  371,366
  392,962
  415,538
  439,145
Total liabilities, $m
  55,280
  55,210
  62,343
  69,904
  77,884
  86,275
  95,071
  104,271
  113,874
  123,881
  134,298
  145,134
  156,399
  168,106
  180,271
  192,914
  206,055
  219,718
  233,928
  248,714
  264,107
  280,138
  296,842
  314,256
  332,420
  351,375
  371,163
  391,832
  413,428
  436,004
  459,611
Total equity, $m
  24,761
  22,115
  24,972
  28,001
  31,197
  34,558
  38,082
  41,767
  45,613
  49,622
  53,795
  58,135
  62,647
  67,336
  72,209
  77,274
  82,537
  88,010
  93,702
  99,625
  105,791
  112,212
  118,903
  125,879
  133,154
  140,747
  148,673
  156,952
  165,603
  174,646
  184,102
Total liabilities and equity, $m
  80,041
  77,325
  87,315
  97,905
  109,081
  120,833
  133,153
  146,038
  159,487
  173,503
  188,093
  203,269
  219,046
  235,442
  252,480
  270,188
  288,592
  307,728
  327,630
  348,339
  369,898
  392,350
  415,745
  440,135
  465,574
  492,122
  519,836
  548,784
  579,031
  610,650
  643,713
Debt-to-equity ratio
  1.406
  1.570
  1.680
  1.770
  1.840
  1.900
  1.960
  2.010
  2.050
  2.080
  2.120
  2.140
  2.170
  2.190
  2.210
  2.230
  2.250
  2.260
  2.280
  2.290
  2.300
  2.310
  2.320
  2.330
  2.340
  2.350
  2.360
  2.370
  2.370
  2.380
  2.390
Adjusted equity ratio
  0.187
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  9,476
  3,061
  3,450
  3,860
  4,291
  4,744
  5,218
  5,713
  6,229
  6,767
  7,327
  8,450
  9,054
  9,683
  10,335
  11,014
  11,719
  12,453
  13,216
  14,010
  14,837
  15,698
  16,596
  17,532
  18,508
  19,527
  20,592
  21,704
  22,866
  24,081
  25,351
Depreciation, amort., depletion, $m
  1,800
  2,377
  2,588
  2,812
  3,049
  3,297
  3,558
  3,830
  4,115
  4,411
  4,720
  4,300
  4,634
  4,981
  5,341
  5,716
  6,105
  6,510
  6,931
  7,369
  7,825
  8,300
  8,795
  9,311
  9,849
  10,410
  10,997
  11,609
  12,249
  12,918
  13,617
Funds from operations, $m
  6,416
  5,438
  6,038
  6,672
  7,339
  8,041
  8,775
  9,543
  10,344
  11,178
  12,047
  12,749
  13,688
  14,663
  15,676
  16,730
  17,824
  18,963
  20,147
  21,379
  22,661
  23,998
  25,390
  26,842
  28,357
  29,938
  31,588
  33,313
  35,114
  36,998
  38,968
Change in working capital, $m
  41
  -222
  -236
  -251
  -265
  -278
  -292
  -305
  -318
  -332
  -345
  -359
  -373
  -388
  -403
  -419
  -436
  -453
  -471
  -490
  -510
  -531
  -554
  -577
  -602
  -628
  -656
  -685
  -716
  -748
  -783
Cash from operations, $m
  6,375
  5,660
  6,275
  6,922
  7,604
  8,319
  9,067
  9,848
  10,663
  11,510
  12,392
  13,109
  14,061
  15,051
  16,080
  17,149
  18,260
  19,415
  20,618
  21,869
  23,172
  24,529
  25,944
  27,420
  28,959
  30,566
  32,244
  33,998
  35,830
  37,747
  39,751
Maintenance CAPEX, $m
  0
  -1,438
  -1,636
  -1,847
  -2,071
  -2,307
  -2,556
  -2,817
  -3,089
  -3,374
  -3,670
  -3,979
  -4,300
  -4,634
  -4,981
  -5,341
  -5,716
  -6,105
  -6,510
  -6,931
  -7,369
  -7,825
  -8,300
  -8,795
  -9,311
  -9,849
  -10,410
  -10,997
  -11,609
  -12,249
  -12,918
New CAPEX, $m
  -4,278
  -3,784
  -4,036
  -4,279
  -4,516
  -4,748
  -4,978
  -5,206
  -5,434
  -5,663
  -5,895
  -6,132
  -6,374
  -6,625
  -6,884
  -7,154
  -7,436
  -7,731
  -8,041
  -8,367
  -8,710
  -9,072
  -9,453
  -9,855
  -10,279
  -10,726
  -11,198
  -11,696
  -12,221
  -12,775
  -13,359
Cash from investing activities, $m
  -5,245
  -5,222
  -5,672
  -6,126
  -6,587
  -7,055
  -7,534
  -8,023
  -8,523
  -9,037
  -9,565
  -10,111
  -10,674
  -11,259
  -11,865
  -12,495
  -13,152
  -13,836
  -14,551
  -15,298
  -16,079
  -16,897
  -17,753
  -18,650
  -19,590
  -20,575
  -21,608
  -22,693
  -23,830
  -25,024
  -26,277
Free cash flow, $m
  1,130
  438
  603
  797
  1,017
  1,263
  1,533
  1,826
  2,139
  2,474
  2,827
  2,998
  3,387
  3,793
  4,215
  4,654
  5,108
  5,579
  6,067
  6,571
  7,093
  7,633
  8,192
  8,770
  9,370
  9,992
  10,636
  11,305
  12,000
  12,723
  13,474
Issuance/(repayment) of debt, $m
  1,139
  6,610
  7,133
  7,561
  7,980
  8,391
  8,797
  9,200
  9,602
  10,007
  10,418
  10,836
  11,265
  11,707
  12,166
  12,643
  13,141
  13,663
  14,210
  14,786
  15,392
  16,031
  16,704
  17,415
  18,164
  18,954
  19,789
  20,669
  21,597
  22,575
  23,607
Issuance/(repurchase) of shares, $m
  -215
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  1,863
  6,610
  7,133
  7,561
  7,980
  8,391
  8,797
  9,200
  9,602
  10,007
  10,418
  10,836
  11,265
  11,707
  12,166
  12,643
  13,141
  13,663
  14,210
  14,786
  15,392
  16,031
  16,704
  17,415
  18,164
  18,954
  19,789
  20,669
  21,597
  22,575
  23,607
Total cash flow (excl. dividends), $m
  3,013
  7,048
  7,736
  8,358
  8,997
  9,654
  10,330
  11,025
  11,742
  12,481
  13,244
  13,834
  14,652
  15,500
  16,381
  17,296
  18,249
  19,242
  20,277
  21,357
  22,485
  23,664
  24,896
  26,185
  27,534
  28,946
  30,425
  31,974
  33,597
  35,298
  37,082
Retained Cash Flow (-), $m
  -8,282
  -2,684
  -2,857
  -3,029
  -3,196
  -3,361
  -3,524
  -3,685
  -3,846
  -4,009
  -4,173
  -4,340
  -4,512
  -4,689
  -4,873
  -5,064
  -5,264
  -5,473
  -5,692
  -5,923
  -6,166
  -6,421
  -6,691
  -6,976
  -7,276
  -7,592
  -7,927
  -8,279
  -8,651
  -9,043
  -9,456
Prev. year cash balance distribution, $m
 
  5,330
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  9,694
  4,878
  5,329
  5,801
  6,293
  6,806
  7,340
  7,896
  8,472
  9,071
  9,493
  10,139
  10,810
  11,508
  12,232
  12,985
  13,769
  14,585
  15,434
  16,320
  17,242
  18,205
  19,209
  20,258
  21,354
  22,498
  23,695
  24,946
  26,256
  27,626
Discount rate, %
 
  6.50
  6.83
  7.17
  7.52
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.43
  17.25
  18.11
  19.01
  19.96
  20.96
  22.01
  23.11
  24.27
  25.48
  26.75
PV of cash for distribution, $m
 
  9,103
  4,275
  4,330
  4,340
  4,303
  4,219
  4,091
  3,920
  3,712
  3,471
  3,138
  2,862
  2,573
  2,280
  1,990
  1,709
  1,443
  1,197
  975
  779
  610
  468
  351
  257
  183
  128
  86
  57
  36
  23
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

National Grid plc transmits and distributes electricity and natural gas. It operates through UK Electricity Transmission, UK Gas Transmission, UK Gas Distribution, and US Regulated segments. The UK Electricity Transmission segment owns and operates electricity transmission networks, which comprise approximately 7,200 kilometers of overhead line, 1,500 kilometers of underground cable, and 338 substations located in England and Wales. It also operates the Scottish networks. The UK Gas Transmission segment owns and operates gas transmission system that include approximately 7,660 kilometers of high pressure pipe and 24 compressor stations in Great Britain. The UK Gas Distribution segment owns and operates gas distribution networks, which consist of approximately 131,000 kilometers of gas pipelines in Great Britain, as well as transports gas to 10.9 million consumers. The US Regulated segment jointly owns and operates transmission facilities across upstate New York, Massachusetts, New Hampshire, Rhode Island, and Vermont; owns and operates electricity distribution networks in upstate New York, Massachusetts, and Rhode Island. These assets include 174 kilometers of underground cable, 491 transmission substations, and 688 distribution substations. It also engages in owning and operating gas distribution networks across upstate New York, New York City, Long Island, Massachusetts, and Rhode Island. The company also owns and operates 50 fossil fuel-powered stations on Long Island and 7.9 megawatts of solar generation in Massachusetts; and 224 kilometers interconnector between New England in the United States and Canada. It is also involved in gas metering, property management, liquefied natural gas (LNG) import terminal, unregulated transmission pipeline, and LNG operations. National Grid plc was founded in 1990 and is headquartered in London, United Kingdom.

FINANCIAL RATIOS  of  National Grid ADR (NGG)

Valuation Ratios
P/E Ratio 22.8
Price to Sales 11.8
Price to Book 8.7
Price to Tangible Book
Price to Cash Flow 33.9
Price to Free Cash Flow 103
Growth Rates
Sales Growth Rate 13.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -3%
Cap. Spend. - 3 Yr. Gr. Rate 2.4%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 113.6%
Total Debt to Equity 140.6%
Interest Coverage 4
Management Effectiveness
Return On Assets 13.6%
Ret/ On Assets - 3 Yr. Avg. 8.1%
Return On Total Capital 17.1%
Ret/ On T. Cap. - 3 Yr. Avg. 9.7%
Return On Equity 46%
Return On Equity - 3 Yr. Avg. 27.7%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 30%
EBITDA Margin - 3 Yr. Avg. 32.9%
Operating Margin 21.3%
Oper. Margin - 3 Yr. Avg. 23.3%
Pre-Tax Margin 14.5%
Pre-Tax Margin - 3 Yr. Avg. 16.5%
Net Profit Margin 51.8%
Net Profit Margin - 3 Yr. Avg. 28.2%
Effective Tax Rate 17.1%
Eff/ Tax Rate - 3 Yr. Avg. 19.6%
Payout Ratio 18.8%

NGG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NGG stock intrinsic value calculation we used $18278 million for the last fiscal year's total revenue generated by National Grid ADR. The default revenue input number comes from 2017 income statement of National Grid ADR. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our NGG stock valuation model: a) initial revenue growth rate of 13.8% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 6.5%, whose default value for NGG is calculated based on our internal credit rating of National Grid ADR, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of National Grid ADR.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of NGG stock the variable cost ratio is equal to 75.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for NGG stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for National Grid ADR.

Corporate tax rate of 27% is the nominal tax rate for National Grid ADR. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the NGG stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for NGG are equal to 150.2%.

Life of production assets of 19.1 years is the average useful life of capital assets used in National Grid ADR operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for NGG is equal to -8.8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $24761 million for National Grid ADR - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 749.208 million for National Grid ADR is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of National Grid ADR at the current share price and the inputted number of shares is $47.1 billion.

RELATED COMPANIES Price Int.Val. Rating
ED Consolidated E 83.02 49.92  sell
AGR Avangrid 46.93 46.23  hold
ES Eversource Ene 62.46 43.42  sell
UTL Unitil 48.63 21.22  str.sell

COMPANY NEWS

▶ ETFs with exposure to National Grid Plc : August 11, 2017   [Aug-11-17 06:07PM  Capital Cube]
▶ Is National Grid Stock Oversold? 1 Analyst Thinks So   [Aug-01-17 11:17AM  Motley Fool]
▶ ETFs with exposure to National Grid Plc : July 31, 2017   [Jul-31-17 04:58PM  Capital Cube]
▶ [$$] National Grid Hires Global Technology Chief   [Jul-20-17 11:54AM  The Wall Street Journal]
▶ ETFs with exposure to National Grid Plc : July 13, 2017   [Jul-13-17 04:18PM  Capital Cube]
▶ In Your 70s? 3 Stocks You Might Want to Buy   [Jul-06-17 09:11AM  Motley Fool]
▶ [$$] National Grid offers offenders a way back to work   [Jul-04-17 07:02PM  Financial Times]
▶ ETFs with exposure to National Grid Plc : July 3, 2017   [Jul-03-17 03:30PM  Capital Cube]
▶ Stocks That Fell to 3-Year Lows in the Week of June 23   [Jun-24-17 06:55PM  GuruFocus.com]
▶ ETFs with exposure to National Grid Plc : June 23, 2017   [Jun-23-17 02:22PM  Capital Cube]
▶ 3 Dividend Stocks for Retirement   [Jun-16-17 12:06PM  Motley Fool]
▶ Buy National Grid on This Weakening Pound   [Jun-14-17 12:00PM  TheStreet.com]
▶ ETFs with exposure to National Grid Plc : June 13, 2017   [Jun-13-17 12:46PM  Capital Cube]
▶ 3 Stocks to Buy With Dividends Yielding More Than 4%   [May-30-17 09:47AM  Motley Fool]
▶ The 3 Stocks on the MFM Team's Radar This Week   [May-26-17 12:56PM  Motley Fool]
▶ 3 Top High-Yield Dividend Stocks to Buy Now   [Apr-20-17 09:55AM  Motley Fool]
▶ Last Week in Solar   [Apr-09-17 03:35PM  Motley Fool]
▶ [$$] Investors Are Building Their Own Green-Power Lines   [Apr-07-17 12:33AM  The Wall Street Journal]
▶ [$$] National Grid calls for rule change so it can own storage   [Apr-02-17 12:57PM  Financial Times]
▶ The 1 High-Yield Dividend Stock I Want to Own in 2017   [Feb-25-17 09:34AM  Motley Fool]
▶ If You're Retired, Consider Buying These 3 Stocks   [Feb-11-17 09:24AM  Motley Fool]
▶ 3 High-Yield Dividend Stocks to Buy in February   [Jan-28-17 01:26PM  Motley Fool]
▶ Sunrun Finds Big-Name Partner in National Grid   [Jan-13-17 11:25AM  Motley Fool]
▶ [$$] National Grid spared from break-up by Ofgem ruling   [Jan-12-17 03:40AM  at Financial Times]
▶ 3 Large-Cap Stocks to Buy in January   [Dec-28-16 09:21AM  at Motley Fool]
▶ [$$] Week in Review, December 10   [Dec-09-16 06:14PM  at Financial Times]
▶ 5 Top Utility Stocks With Good Dividends   [11:35AM  at Motley Fool]
▶ [$$] National Grid: nice price, high costs   [Dec-08-16 08:43PM  at Financial Times]
▶ [$$] Infrastructure Investors Are Out of Tune With Markets   [10:20AM  at The Wall Street Journal]
▶ National Grid's Crown Jewel Triumph   [08:36AM  at Bloomberg]
▶ [$$] Sovereign-Wealth Funds Buy Stake in U.K. Gas Business   [06:19AM  at The Wall Street Journal]
▶ Is Bank of Nova Scotia (BNS) A Good Stock To Buy?   [Dec-04-16 04:47PM  at Insider Monkey]
▶ [$$] UK grid loses half the power from link to France   [Nov-29-16 01:14PM  at Financial Times]
▶ Duke Energy Corp (DUK): Not Doing Enough to Attract Smart Money   [Nov-28-16 02:59PM  at Insider Monkey]
▶ [$$] National Grid: pile on   [01:28PM  at Financial Times]
▶ [$$] National Grid to be spared from break-up   [Nov-27-16 12:09PM  at Financial Times]
▶ These 3 Hated Dividend Stocks Are Buys   [Nov-14-16 11:43AM  at Motley Fool]
▶ [$$] National Grid reassures on possible Chinese deal   [Nov-10-16 12:32PM  at Financial Times]
▶ Escaping China's Parent Trap   [Oct-17-16 01:06AM  at Bloomberg]
▶ [$$] Perverse logic behind National Grid revamp   [Sep-25-16 12:16PM  at Financial Times]
▶ 3 Stocks to Buy With Dividends Yielding More Than 4%   [Sep-24-16 10:25AM  at Motley Fool]
▶ [$$] National Grid issues record £3bn sterling bond   [Sep-13-16 01:37PM  at Financial Times]
▶ Sense Closes $14 Million Series A   [Sep-01-16 07:30AM  Marketwired]
▶ [$$] Batteries power UK switch to renewables   [Aug-26-16 12:47PM  at Financial Times]
Stock chart of NGG Financial statements of NGG
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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