SSE tackles all of the hot button topics as it raises investment and confirms lower dividend

Thursday, May 25, 2023 - 07:51

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"Utilities, even ones whose focus is renewable energy, are conscious of accusations of profiteering in these inflation-stricken times and SSE is careful to flag its record capital investment budget, the acceleration of its drive to net zero and the planned dividend cut for the coming fiscal year as it reveals a healthy jump in underlying profits for the twelve months to March 2023," says AJ Bell investment director Russ Mould.

"SSE is supplementing cash flow with the proceeds from the sale of 25% in its SSEN Transmission business and the lower dividend to fund its five-year, £18 billion capital investment drive which forms the core of its enhanced Net Zero Acceleration programme and underpins goals to grow earnings at a double-digit rate each year out to 2027. "The dividend cut had been well flagged by chief executive Alistair Phillips-Davies and investors have taken it in their stride, perhaps encouraged by SSE's target to grow the shareholder distribution by 5% to 10% a year from fiscal 2025 onwards.

Source: Company accounts, Marketscreener, consensus analysts' forecasts. Fiscal year to March "In the near term, capital investment in the asset base is the company's focus, as it seeks to play its part in both the UK's long-term energy security needs and its drive toward net zero by 2050. The FTSE 100 firm has increased its capital investment plans, under the terms of what it calls its Net Zero Acceleration Programme Plus strategy. It now intends to spend £18 billion by March 2027 rather than £12.5 billion by March 2025. "SSE may well make further acquisitions too, following last year's purchases of Triton Power, as it focuses on onshore and offshore wind, solar, emerging technologies, gas storage and also, where appropriate under EU taxonomy and its return criteria, thermal sources and efficient transmission and distribution.

Source: Company accounts, Marketscreener, consensus analysts' forecasts. Fiscal year to March "SSE spent 42% of its capex budget on regulated networks, 39% on renewables and just 7% on thermal power in fiscal 2022 and going forward renewables will get a 40% share of the budget, as offshore wind projects such as Dogger Bank and Seagreen are advanced.

Source: Company accounts for the year to March 2023 "In terms of earnings, power transmission and distribution via regulated networks are the biggest earners, followed by energy generation. While SSE has sold a 25% stake in SSEN Transmission for £1.5 billion, it has made its commitment to keeping all of SSEN Distribution clear and this seems to have dismissed calls for a break-up of the group that could cleave it in two, between regulated networks and thermal power on one side and renewables on the other.

Source: SSE, for the first half of fiscal 2023 to September 2022"The ambitious capital investment project will grow the asset base, as may select acquisitions, and that in turn is expected to drive compound adjusted earnings per share (EPS) of 13% to 16% over the next five years, a more aggressive target than the first iteration of the Net Zero Acceleration Programme, which had set out its stall to generate compound annual growth in adjusted EPS of 7% to 10% a year."

These articles are for information purposes only and are not a personal recommendation or advice.

The chart of the week is written by Russ Mould, AJ Bell's Investment Director and his team.