ii view: SSE – green and keen to pay dividends

It's the UK’s biggest renewable generator, with plans to triple such output by 2030. Buy, sell or hold?

Third-quarter trading update to 31 December

• Expects full-year adjusted earnings per share of between 85p to 90p – unchanged
• Expects full year dividend of 80p per share plus inflation (RPI)

Finance director Gregor Alexander said: 

"With solid operational performance and strong strategic execution, SSE is well positioned as we move towards the end of our financial year. Our robust business model is mitigating the impact of coronavirus, our disposal programme is proceeding at pace and at Dogger Bank we have shown yet again that we can develop opportunities and create value from world-class assets. 

"With a number of uncertainties lifting and an increasingly supportive policy environment which further underpins our clear strategic focus on the transition to net zero, SSE is on a strong strategic footing for the rest of 2020/21 and beyond."

ii round-up:

Power generator and network operator SSE (LSE:SSE) today reiterated full-year guidance for both earnings and the dividend payment. it also reconfirmed it expects a profit hit from the pandemic towards the middle of £150 million to £250 million.

The Perth, Scotland headquartered company also remains on track to sell over £2 billion of assets under its climate change strategic shift, with its share stake in Scotia Gas Networks (SGN) now under disposal review. 

Shares of SSE moved marginally higher in UK trading, leaving them up around 40% since March pandemic lows and virtually unchanged over the last year. Shares for UK and US power network operator National Grid (LSE:NG.) are down by more than 10% over the last year. Shares for the British Gas brand owner Centrica (LSE:CNA) remain down by more than a third. 

SSE intends to pay a dividend covering the full year to March 2021 of 80p per share plus inflation calculated under the Retail Price Index (RPI). That's in line with its 2018 five-year dividend policy. Analyst forecasts for this year come in at around 81.3p, moving up to 83.4p for 2022. 

SSE also confirmed a bid for the offshore Danish Thor windfarm as part of a consortium under its goal to triple renewable energy output by 2030. Other interested parties include a joint venture between Total (EURONEXT:FP) and Iberdrola (XMAD:IBE), and Orsted.

Management pointed towards “good progress” being made under its five-year £7.5 billion investment and capital expenditure plan. The plan includes its previously announced Viking wind farm on the Shetland Island, comprising 103 turbines and generating 443MW. That's enough to power almost half a million homes.  

Full-year results are currently scheduled for 26 May. 

ii view:

SSE operates both regulated UK energy networks, accounting for around half of its earnings, and renewable generation, which makes up most of the balance. Around 10% still comes from non-renewable generation, energy supply and other related energy services. The company is now the UK’s biggest renewable generator with plans to triple such output by 2030.

For investors, reduced business demand for energy under lockdowns and the pandemic need to be remembered. Competition in the renewable energy arena is also increasing rapidly. Many of the oil majors such as BP (LSE:BP.) and Royal Dutch Shell (LSE:RDSB) are now targeting renewable sources. But today’s confirmation of SSE's move to targeting overseas assets appears to further underline its growth aspirations. The planned total full-year dividend also leaves the shares on an income yield of over 5% (not guaranteed), tough to ignore in an era of ultra-low interest rates. In all, and given its expanding green credentials and still highly attractive dividend return, the shares arguably remain fully worthy of continued investor support.     

Positives

• Expanding renewable clean energy
• Attractive dividend payment

Negatives

• Ongoing Covid-19 uncertainty
• Growing renewable energy competition  

The average rating of stock market analysts:

Buy