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SSE defensive on profit jump

RESULTS: SSE defends its profits and warns that its recently announced energy price freeze will weigh in future years.
May 21, 2014

"I think our profits are fair," said SSE chief executive Alistair Phillips-Davies, as the utility giant announced adjusted pre-tax profits of £1.6bn. His case rests on the fact that SSE has invested over £7.5bn in the last five years and needs to make an acceptable return on that investment.

IC TIP: Hold at 1,573p

The 10 per cent increase in SSE's adjusted pre-tax profit last year was driven by the wholesale business, where profits rose by a quarter on the back of higher renewable energy output and increased exploration and production activities. Meanwhile, profits in the politically contentious retail business tumbled 29 per cent due to the mild winter and higher wholesale energy costs.

The news is likely to get worse. As a result of the energy price freeze announced by SSE in March, Mr Phillips-Davies says the group "might see up to £100m-worth wiped off our profits in the 2015 period". That will push dividend cover below SSE's target of 1.5 times - possibly to as low as 1.2 times next year.

Nevertheless, SSE remains committed to growing the payout at least in line with inflation. Whitman Howard expects a 3 per cent dividend increase to 89.3p this year, with adjusted earnings flat at 123p.

SSE (SSE)
ORD PRICE:1,573pMARKET VALUE:£15bn
TOUCH:1,572-1,574p12-MONTH HIGH:1,690pLOW: 1,297p
DIVIDEND YIELD:5.5%PE RATIO:47
NET ASSET VALUE:301p*NET DEBT:150%

Year to 31 MarTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
201021.61.613470
201128.32.116275
201231.70.32180.1
201328.30.64284.2
201430.60.63486.7
% change+8+1-21+3

Ex-div: 23 Jul

Payment: 19 Sep

*Includes intangible assets of £889m, or a 91p share