How could the investigation affect National Grid's financial performance and cash flow?

Impact on financial performance & cash‑flow

The Pomerantz LLP investigation introduces a new contingent‑liability head‑line for National Grid (NGG). Even if the claims are modest, litigation‑related expenses—legal counsel, potential settlement or damages, and associated administrative costs—will be booked as non‑operating items in the next reporting period. Because National Grid’s balance sheet is heavily weighted toward regulated utility assets, any out‑of‑pocket cash outflow will directly dent free‑cash‑flow (FCF) that normally funds its capital‑expenditure program and the quarterly dividend. If the case proceeds to a settlement, the company could be forced to allocate a portion of its cash reserves or raise external financing, which would increase leverage and could pressure its credit rating.

Trading implications

The market has already priced in a negative sentiment (‑60 sentiment score) and the stock is likely to experience heightened volatility as the investigation progresses. On the daily chart, NGG is testing a key support zone around $45‑$46, with the 20‑day SMA and the 200‑day moving average converging near that level—suggesting a technical “bounce‑or‑break” scenario. If the investigation materialises into a credible financial exposure, a break below $45 could trigger a short‑cover rally, while a clear defense or dismissal would likely rebound the price toward the $48‑$50 range, where recent resistance and the 50‑day SMA sit.

Actionable view

• Short‑term bias: Maintain a cautious short‑position or a put‑option overlay if you are already long, targeting a downside move to $42‑$43 (the next technical support) on the back‑of‑the‑envelope risk of a cash‑flow hit.
  
• Risk management: Keep a stop just above the 20‑day SMA (~$46) to limit exposure if the legal risk is de‑escalated.
  
• Long‑term perspective: If you are a dividend‑focused investor, assess the company’s ability to sustain its payout ratio after potential cash‑flow reductions; a reduced dividend could further pressure the stock, so a “buy‑the‑dip” only makes sense after the legal outcome is clearer.
  

In short, the investigation adds a material, uncertain drag on National Grid’s earnings and cash generation, which is already reflected in a bearish sentiment and a fragile technical setup. Traders should stay on the short side or hedge existing longs until the litigation risk is resolved.