National Grid Cut by Nomura; Severn Trent, Pennon Preferred

Investors in U.K. utilities should buy shares in water companies Severn Trent Plc and Pennon Plc over National Grid Plc as it struggles to boost U.S. operations, according to Nomura Securities Inc.

“National Grid has been trying to repair returns for the U.S. regulated business for almost two years,” John Musk, an analyst at Nomura, wrote in a note to investors today. The utility’s return on equity from U.S. operations was below 7 percent at the time of the last full-year results, compared with a target of “double-digit” returns, Musk said.

Nomura cut its rating on National Grid to “neutral” from “buy.”

The resolution of rate cases in the U.S., which review how much the utility can charge, has been slow, Musk said. National Grid’s request for additional revenue of $104 million in Massachusetts, which represents about 10 percent of U.S. operations, was trimmed to $58 million by the state’s Department of Public Utilities earlier this month.

A decision by the New York Public Service Commission on National Grid’s final major case filing is expected in January, Financial Director Steve Lucas said on a conference call yesterday.

To contact the reporter on this story: Kari Lundgren in London at

To contact the editor responsible for this story: Will Kennedy at

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