ii view: SSE reports year of record renewable investment

This major utility company plans to keep investing in low-carbon electricity, with a dividend cut enhancing its spending power. We assess prospects. 

Full-year results to 31 March

• Adjusted earnings per share up 75% to 166p 
• Final dividend of 67.7p per share
• Total full-year dividend up 12.9% to 96.7p per share
• Net debt and hybrid capital up 3% to £8.9 billion

Guidance:

• Expects full-year 2023/24 adjusted earnings per share of more than 150p
• Expects capital expenditure and investment for the year ahead to exceed the £2.8 billion record investment over the year just finished

Chief executive Alistair Phillips-Davies said:

"Action, not just ambition, is what is needed to provide lasting solutions to the problems of climate change, energy affordability and security - and, with a record-breaking investment programme, that is what we are delivering.”

“Through delivery of our societally-aligned strategy we are accelerating the build-out of renewables, reinforcing the networks needed to decarbonise, providing much-needed flexible generation, and working hard to ensure no-one is left behind in the transition to net zero.”

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ii round-up:

Energy provider SSE (LSE:SSE) today detailed full-year results broadly in line with City forecasts as it invested a record £2.8 billion in low-carbon electricity infrastructure such as wind farms off the coast of Scotland.

Adjusted earnings per share rose 75% year-over-year to 166p, pushed by higher power prices, acquired additional generating plant and the benefit of its own gas storage operations against the backdrop of reduced Russian supply. A final dividend of 67.7p per share gives a total full year payment of 96.7p per share, a rise of 12.9% from the prior year.  

Shares in the FTSE 100 company fell marginally in UK trading having come into this latest news up around 9% year-to-date. That’s similar to utility giant National Grid (LSE:NG.) but less than the 20% gain at British Gas brand owner Centrica (LSE:CNA). The FTSE 100 index itself is up just under 1% during 2023.  

Accompanying SSE management projections point to hopes of adjusted earnings for the year ahead of more than 150p per share, with investment in its infrastructure expected to surpass the record £2.8 billion just made. 

SSE plans to deliver over a fifth of the networks and offshore wind investments required to meet the UK’s climate change targets. Group investment may now total around £40 billion come 2031/32. 

SSE investment plans remain fully funded with net debt and hybrid capital rising 3% year-over-year to £8.9 billion. As previously announced, the dividend for the year ahead or 2023/2024 will be rebased or cut to 60p per share to support the investment spend. Dividend increases thereafter of at least 5% per annum are targeted for 2024/25 and 2025/26.

Broker Morgan Stanley reaffirmed its ‘overweight’ stance on the shares following the results, with SSE remaining one of its ‘top picks.’

ii view:

Scottish & Southern Energy (SSE) was formed via the merger of Southern Electric and Scottish Hydro Electric. Its energy projects and investments include the world's largest offshore wind farm at Dogger Bank. Once fully operational in 2026 it is expected to generate 3.6 GW of power, enough to power around six million UK homes.

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For investors, renewable energy production such as wind power has proved vulnerable to the weather and regulatory reviews can cause uncertainty. Energy producers across the board have also found themselves subject to a UK windfall tax, while a plan cut to the dividend will also see the dividend yield fall from 4.6% to nearer 3% at the current share price.  

On the upside, major investment to help the UK reach its climate change goals continues. SSE remains the UK’s biggest renewable energy generator with more traditional generation plants helping to balance out the volatility of its renewable output, while 5% annual increases in the dividend are planned after the reset. 

On balance, and with concerns for climate change not going away and consensus analyst estimate of fair value at over £20 per share, scope for continued longer-term optimism looks to remain. 

Positives

• Expanding renewable clean energy
• Attractive dividend payment (not guaranteed)

Negatives

• Subject to regulatory rulings
• Growing renewable energy competition  

The average rating of stock market analysts:

Buy