Good news today, the EU has decided to release its suspension of Capacity Market payments, which means SSE can now receive the £140M or so which has been held back and is long overdue.
Not sure if this will alter bottom line profit as reported, the income may already have been accrued since this resolution was expected, but it will provide a healthy cash flow boost when the payment lands.
News of a squabble with OFGEM over the cost of new connections to proposed wind farms off the Western Isles and Shetland is not good, since the schemes had previously been given the nod earlier in 2019. Going ahead is essential to both parties and to the idea of accelerating the UK towards being carbon neutral. So how do you resolve a situation where a monopsonic agent wants to squeeze a monopolistic supplier? A compromise of course, but pressure to secure national energy supply is surely greater than any pressure on SSE to invest in something entirely at its own risk on terms which will not be economically worthwhile. New nuclear capacity programmes or interconnects across the North Sea are not obviously riding in like the US Cavalry to save the day.
OFGEM really grinds my gears. Another small challenger Toto gone bust today shortly after getting approval to take on a previous failed suppliers customer base, and while still owing £4-5M of climate change levies which have been paid by consumers to Toto. But not by Toto to OFGEM. The excuse … we did not have the powers to act … is utterly pathetic, imagine those reedy whining tones of the former Commons speaker Michael Martin while excusing his dithering. The day when OFGEM is found to be expensive and not fit for purpose another step closer.
The other news, that CMA will scrutinise the Ovo-SSE merger, is neither surprising nor a real concern. Prior to the previous deal collasing the CMA approved a merger with nPower, so an objection to a merger with Ovo is unlikely … Ovo is smaller and is one of the challenger suppliers favoured by OFGEM. If Ovo is credible that its business model can sustain home energy supply cheaper than the old Big 6, how can transferring 3.5 million households from an old Big 6 to a challenger be anything other than good news for the consumer? I suppose the CMA has to do something (how about cracking on with an inquiry in to rip off insurance) but hopefully with a bit of common sense will nod the deal through swiftly.
Interim results on 13 Nov may not be great, we have already been warned on H1 financial performance, but outlook will surely be brighter. The steady rise in sp from 1000p in May and 1100p in July and 1200p in September should continue. We know the annual divi payment is due to be revised down to 80p, so the interim might only be 20p ex-div c. 16 Jan 2020.
Enough to underpin a 1300-1350p share price as we are today. But actually a review of the potential for the business might see more broker positives and I am beginning to feel this could recover all the way to 1500p.