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SSE looks on the bright side

The threat of a windfall tax takes the shine off the shares, but SSE’s ability to generate investor income is an important draw
SSE looks on the bright side
  • Management prefers to accentuate the positive
  • Traditional energy sees the greatest growth

It had been a turbulent week for SSE’s (SSE) share price in the days prior to these results after newspaper reports that the government is considering an industry-wide windfall tax to help alleviate fuel poverty. Luckily for investors, the results themselves sparked something of a recovery in the share price, after no official confirmation of the plans was forthcoming, SSE’s operational performance and return to dividend growth, brightened the overall mood.

Although the company consistently points to the level of green investment in its operations – capital spending topped £2bn last year, well ahead of the £612mn depreciation charge – an unfortunate lack of wind in the first half, meant that SSE’s traditional thermal and gas storage divisions saw the greatest level of growth. For instance, operating profits at thermal increased by 91 per cent to £306mn as it performed better in the balancing market (that lack of wind, again). Renewables saw a contrasting decline in operating profits of 22 per cent to £568mn.

Chief executive Alistair Phillips-Davies addressed the windfall tax issue directly: “So far, I have only seen speculation in a newspaper, and I have not held any conversations with anyone in government about a windfall tax.” He added that government policy towards energy pricing had remained, “clear and consistent.” The company is forecasting EPS growth over the next five years of 5-7 per cent.

The prospect of one-off taxes will create an overhang for the shares until the government clarifies its policy. Still, SSE has capacity to raise cash via disposals and a forward dividend yield nudging 5 per cent, income investors can afford to keep the shares. Hold.

Last IC View: Hold, 1,591p, 17 Nov 2021

SSE (SSE)    
ORD PRICE:1,851pMARKET VALUE:£ 20bn
TOUCH:1,849-1,851p12-MONTH HIGH:1,935pLOW: 1,445p
DIVIDEND YIELD:4.6%PE RATIO:6
NET ASSET VALUE:755p*NET DEBT:87%
Year to 31 MarTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
201827.30.8664.394.7
20197.301.3012497.5
20206.800.5940.680.0
2021 (restated)6.822.4221981.0
20228.613.4828785.7
% change+26+44+31+6
Ex-div:28 Jul   
Payment:22 Sep   
*intangible assets of £1.58bn, or 148p a share