The valuation of the National Grid company Assignment

The valuation of the National Grid company - Assignment Example The reason behind the selection of the model can be explained with the help of the following advantages National Grid Company Plc is a multinational company headquartered in London. The primary business includes the supply of electricity and gas utility. The company is listed both in London Stock Exchange and FTSE 100 index. It is categorized under the diversified utilities industry. The company has 20th largest primary listing on London stock exchange. The company also has the secondary listing on NYSE (Hoover, 2011). The market price on October 1st 2012 was  £624.68(closing price of London stock exchange on Oct 1st 2012) (yahoofinance, 2015).Comparing the market price with the intrinsic value calculated using the residual income model above shows that the Stock of National Grid Plc is undervalued as compared to the intrinsic value. The rationale for the stable long term growth rate of 0.05% was that the National Grid is expected to reach the stable level of supply requirement of gas in UK because in the beginning of 2015, which shows minimum shortfall of 15mcm in London, which can be managed easily afterwards through the flows from Norway and Britain with the lingled pipeline. National Grid is in the process to further improve the supply side by the end of 2015, which may lead to the stabilized phase of National Grid Plc (Reuters, 2015). Therefore, after 2015 and onwards the growth in retained earnings are expected to be minimal i.e. around 0.05%. On May 1st 2015, National Grid Stock has reached at the level of 886.30 which is slightly overvalued from the intrinsic value calculated as on 1st October 2012. Therefore, it can be implied that the price of National Grid Stock is mean