ii view: SSE renewable power output gusts higher

Full-year trading update to 31 March

ii round-up:

Power generator SSE (LSE:SSE) today narrowed its estimate for 2024 earnings as well as reaffirming the appointment of Martin Pibworth as chief executive come July.

Aided by an expected 17% increase in renewable energy production, SSE now expects earnings for the year to 31 December 2024 of between 155p and 160p per share. That’s adjusted from a previous forecast of 154-163p and potentially up from earnings of 158.5p per share in 2023. 

Shares in the FTSE 100 utility retreated 0.5% in UK trading having come into this latest news down 3% over the last year. Transmission provider National Grid (LSE:NG.) is up by a similar amount during that time. The FTSE 100 index has gained around 8%.

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SSE is one of the UK's largest renewable generators including its Dogger Bank wind farm in the North Sea, where construction is behind schedule, as well as traditional gas fired power plants.

The energy company expects to have invested around £3 billion over this latest financial year under its Net Zero Acceleration Programme (NZAP). The fully funded transitional energy focused programme totals £20 billion and is scheduled to run through until 2027, supporting SSE’s hopes for adjusted earnings of between 175p and 200p by that time. 

Management pointed to what it believes is a strong and stable balance sheet, with adjusted net debt as of late March expected to come in at £10 billion, up marginally from £9.84 billion in late September. 

Joining SSE in 1998, executive Martin Pibworth will succeed current CEO Alistair Phillips-Davies at the group’s AGM in July following his decision to retire. 

Broker Morgan Stanley reiterated its overweight stance on the shares post the update, highlighting a price target of 2,000p per share. Full-year results are scheduled for 21 May. 

ii view:

SSE (Scottish & Southern Energy) was formed via the merger of Southern Electric and Scottish Hydro Electric. Renewable operations today include 67 wind farms, 67 hydro schemes and five solar sites, generating around 4.5 gigawatts (GW), with 12 GW in the pipeline. Thermal operations include 14 flexible generation plants producing output of 6.2 megawatt (MW) of power. It also operates electricity transmission networks in the North of Scotland, as well as a distribution business in England and Scotland supplying over 3.9 million homes and businesses. 

For investors, renewable energy production is vulnerable to the weather. Competition in the renewable energy field now includes fossil fuel giants such as Shell and Total. Regulatory reviews are a constant, while a previous reduction in the dividend payment to fund NZAP has seen the dividend yield drop from over 5% to a current forecast yield of around 4%.  

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On the upside, SSE ambition includes delivering over a fifth of the networks and offshore wind investments required to meet the UK’s climate change targets. A diverse portfolio of generating and other assets is held. Moves overseas have included acquiring assets in Spain, Italy and France, while plans to increase the dividend now exist following the previous rebasing.    

For now, and with SSE investment chiming with UK government objectives and a progressive dividend policy, this major UK utility looks to remain worthy of consideration for a place in diversified investor portfolios.  

Positives

• Expanding asset base
• Diversity of operations

Negatives

• Subject to regulatory rulings
• Previous target of government windfall tax  

The average rating of stock market analysts:

Buy