Lower energy prices hit profits at SSE

Earnings at electricity giant SSE (SSE) have come in at the top end of guidance, despite a year of heavy investment and cheaper energy prices. The group reported adjusted earnings per share of 158.5p for the year to 31 March, against consensus estimates of 155p. 

This was still lower than last year’s figure of 166p, however. A standout performance from the renewables division, which grew operating profits by 48 per cent to £833mn, was not enough to offset a tricky period for the thermal business, which saw profits tumble by 29 per cent to £736mn. The decline was driven by lower market volatility, as commodity prices normalised.

SSE has now downgraded its outlook for the thermal and gas storage business, saying operating profit in FY2025 will be “significantly lower than the prior year outturn”. However, its renewables and distribution arms are poised for strong growth.

SSE is ploughing ahead with its investment scheme. Having spent £2.5bn on national energy infrastructure last year, management said capital expenditure and investment will ramp up to over £3bn this year. As expected, the green energy push has come at the expense of the once-trusty dividend, which has been slashed by 38 per cent to 60p. 

The utility company is still in the foothills of its £20.5bn ‘net zero acceleration programme’, and the impact on shareholders has yet to fully unfold. The transition from a steady income stock to something more adventurous could easily throw up problems, however, so we remain on the sidelines for now. Hold. 

Last IC view: Hold, 1,751p, 16 Nov 2023