ii view: SSE earnings slowed by spring drought

First-half trading update to 30 September

• Expects adjusted earnings of between 33p and 37p per share
• Continues to expect adjusted earnings for the full year 2027 of between 175p and 200p per share 

ii round-up:

Power generation and electricity transmission company SSE (LSE:SSE) today outlined expectations for earnings year to date marginally shy of City hopes, hindered by light spring rainfall reducing hydro power generation. 

Management’s estimate for first-half earnings to late September of between 33p and 37p per share comes in at around 23% of analysts’ full year forecast of 151p per share, down from a three-year average of 27%. 

Shares in the FTSE 100 company fell 2% in UK trading having come into this latest news up by around a tenth so far in 2025. That’s similar to UK and US power transmission company National Grid (LSE:NG.). The FTSE 100 index is up 14% year-to-date.

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SSE operations include renewable and traditional gas-powered generation plants as well as transmission and supply networks across the UK. 

First-half power generation of around 5.3 TeraWatt-hours (TWh) is expected to be around 2% lower than the first half of last year, despite a 470 MegaWatt-hours (MWh) increase in wind generation as the group continues to expand operations. 

SSE continues to pursue a £17.5 billion five-year investment, or Net Zero Acceleration Programme (NZAP) to 2027, with a further £1.5 billion expected to have been made over this latest half-year.

Group adjusted net debt is forecast at £11.5 billion as of late September, potentially up from the £10.2 billion reported as of late March. 

SSE continues to forecast adjusted earnings for the financial year to late March 2027 of between 175p and 200p per share, potentially up from 2024’s 160.9p per share.

Broker Morgan Stanley reiterated its ‘overweight’ rating on the shares post the news, flagging the shares as a ‘top pick.’  First-half results are scheduled for 12 November.  

ii view:

Formed via the merger of Southern Electric and Scottish Hydro Electric, SSE today employs over 15,000 people. Already the UK biggest generator of renewable power, a more than 65 turbines stand at its Dogger Bank operation off the coast of Yorkshire, with 95 turbines expected to be installed by the four-quarter of this financial year. Other existing or under construction renewable operations also includes facilities in Ireland, France, Spain and Italy.

For investors, renewable energy production is subject to weather conditions. A forecast price/earnings (PE) ratio above the three-year average may suggest the shares are not obviously cheap. 

A previous reduction and readjustment of the group’s investment plans toward transmission networks and away from renewable energy may have reduced SSE’s environmental appeal, while a previous reduction in the dividend payment to fund NZAP has seen the dividend yield drop from over 5% to a current future estimate of just under 4%.  

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More favourably, ongoing wind farm construction helped drive a near one fifth increase in energy output over its last financial year, with ongoing expansion supporting a forecast of adjusted earnings of up to 200p by 2027. A diverse portfolio of generating and other assets are held. A previously announced cut in investment expenditure to £17.5 billion from £20.5 billion potentially eased investor balance sheet concerns, while dividend increases of between 5% and 10% per year are being targeted to 2027. 

In all, and with strong cashflows backing dividend payments, this major UK utility company remains worthy of its place in many already diversified investor portfolios.

Positives

• Expanding asset base
• Attractive dividend yield (not guaranteed)

Negatives

• Subject to regulatory rulings
• Previous target of government windfall tax 

The average rating of stock market analysts:

Buy