ii view: SSE makes brisk start to £33bn spending programme

Nine-month trading update to 31 December

• Renewables energy production up 7% from a year ago

Guidance:

• Expects full-year 2025/2026 adjusted earnings of between 144p and 152p per share, potentially down from last year’s 161p per share

Chief Finance Officer Barry O'Regan said:

“Since announcing our £33 billion investment programme to unlock the enormous growth opportunity presented by the transformation of electricity networks, our focus has been on accelerating investment and delivering the plan that will create compounding, long-term earnings and value for investors.”

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ii round-up:

SSE (LSE:SSE) today predicted potentially lower full-year earnings because of costs associated with its previously announced £33 billion five-year investment programme to upgrade electricity transmission networks.

Adjusted earnings for the year to late March are now forecast to come in at between 144p and 152p per share versus last year’s 161p per share. Despite mixed weather conditions, SSE’s renewable energy production rose 7% compared to the same nine-month period a year ago.

Shares in the FTSE 100 company rose 2% in UK trading to a fresh record high, having come into this latest news up by just over a third last year. Both the FTSE 100 index and rival electricity transmission company National Grid (LSE:NG.) rose by around a fifth in 2025. 

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

Around £1.8 billion has been invested in networks in the financial year-to-date, with three-quarters of the required planning consents now received under its investment programme to reinforce the grid in northern Scotland.

Away from transmission, a 95th and final wind turbine is soon to be installed at the group’s Dogger Bank A windfarm with further work later to commence on the Dogger Bank B project. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the news, increasing its fair value estimate to £27 from £26.

ii view:

Formed from the merger of Southern Electric and Scottish Hydro Electric, SSE is today headquartered in Perth, Scotland. A constituent of the FTSE 100 index, the group employs around 15,000 people. Regulated Networks accounted for around two thirds of adjusted operating profits during its last half year to late September. Geographically, the UK generated most revenues during its last financial year at 84%, with Ireland the balance. 

For investors, renewable energy production is subject to weather conditions. The cost of investments is likely to weigh on earnings in the short to medium term. Negotiations with the UK regulator offer regular periodic uncertainty, while a forecast price/earnings (PE) ratio above the three- and 10-year averages may suggest the shares are not obviously cheap.  

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More favourably, existing transmission networks and those being extended offer a relatively predictable profits given the regularity of energy usage. A diverse portfolio of generating and other assets are held. A significant chunk (55%) of this major investment programme is being funded from day-to-day operations and cashflows, while dividend increases of between 5% and 10% will continue to be pursued. 

In all, group ownership and investment in UK infrastructure, as well as a prospective dividend yield of close to 3%, will likely keep investors interested in SSE.   

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