SSE girds itself for higher grid spending

Gone are the days of worry over ‘gold-plated’ electrical infrastructure, where owners overbuild and profit from hiking prices. The industry still works on the basis that higher spending is good, however. SSE (SSE) trumpeted a £2.5bn rise in spending in the coming years. 

This is effectively increasing potential buyers for SSE’s electricity as it will largely be spent on transmission infrastructure, although the £2.5bn also includes the impact of higher costs at the Green Link cable project, which will run under the North Sea from Aberdeenshire to North Yorkshire. 

There is some balance sheet upside; SSE raised its 2027 regulated asset value forecast for electricity networks alongside this spending increase to £15bn from £12bn-£14bn, compared to the current £10bn. 

The power giant reported a much calmer third quarter  than last year, when a volatile energy market saw its thermal and gas storage operating profit surge to close to £900mn. This time it was the transmission business that was the top performer, with a £287mn operating profit in the period. The thermal business did hold onto much more of its profits after paper readjustments than last year, however, contributing to the flip to a pre-tax profit. Renewables output was down due to “exceptionally still and dry weather conditions”, although first power from the Dogger Bank offshore wind farm was an important milestone. 

Overall earnings were down on last year, with adjusted EPS at 37p compared with 41.8p, but this was well ahead of expectations.  The interim dividend of 20p is down on last year, as expected after the company cut the payout alongside the 2022/23 results. The full-year dividend is due to be 60p. Hold. 

Last IC View: Hold, 1,887p, 24 May 2023