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SSE suffers due to wholesale slump

As the group looks to energy networks and renewable energy for future growth, heavy losses in the wholesale business weighed heavily on earnings
May 22, 2019

As the energy sector continues to battle regulatory and political challenges, SSE (SSE) saw group adjusted operating profit decline by more than a quarter to £1.14bn in 2019. The fall was largely driven by a deterioration in the wholesale business, where adjusted operating profits plunged by 71 per cent to £192m. Persistently high gas prices resulted in a £285m adjusted operating loss in energy portfolio management, although this is expected to reduce to around £115m this year. 

IC TIP: Hold at 1,017.5p

Following the collapse of the planned merger with npower, the quest to offload the struggling energy services business continues. Lower customer numbers, the default tariff cap and absorption of wholesale price increases meant adjusted operating profit plummeted just over two-thirds to £90m.

With investment and capital expenditure totalling £1.42bn for the year, the group expects this to increase to around £1.5bn in 2020. Accordingly, adjusted net debt is forecast to increase to £10bn, from £8.22bn in 2019.

RBC Capital Markets forecasts adjusted pre-tax profit of £1.07bn and EPS of 92.7p in 2020, from £0.73bn and 67.1p in 2019.

SSE (SSE)    
ORD PRICE:1,017.5pMARKET VALUE:£10.5bn
TOUCH:1017-1018p12-MONTH HIGH:1,450pLOW: 1,015p
DIVIDEND YIELD:9.6%PE RATIO:8
NET ASSET VALUE:564p*NET DEBT:152%
Year to 31 MarTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
201531.70.7455.388.4
201628.80.5946.189.4
201729.01.7815891.3
2018 (restated)27.30.8664.394.7
20197.331.3713597.5
% change-73+59+110+3
Ex-div:25 Jul   
Payment:20 Sep   
*Includes intangible assets of £990m, or 96p a share