Welcome to HL's reimagined News, Insights and Research experience. Find out more

Share research

SSE - 1.5bn GBP sale of stake in SSEN Transmission

SSE has agreed to sell its 25% minority stake in its electricity transmission network business, SSEN Transmission.

No recommendation - No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Prices delayed by at least 15 minutes

This article is more than 1 year old

It was correct at the time of publishing. Our views and any references to tax, investment, and pension rules may have changed since then.

SSE has agreed to sell its 25% minority stake in its electricity transmission network business, SSEN Transmission. The group expects cash proceeds of around £1.5bn and the sale process is expected to begin in early 2023. The proceeds will be used to support growth across the business, including SSEN Transmission - with SSE remaining a majority shareholder.

SSEN Transmission is forecast to have a Regulatory Asset Value (RAV) of almost £5bn by March 2023. SSE will also retain operational control. Planned investment of £2.6bn plus additional support from the regulator is expected to see RAV grow to between £6.5bn and £7bn by 2026.

The shares were unmoved following the announcement.

View the latest SSE share price and how to deal

Our view

SSE's accelerating its pivot towards renewable energy. It's trimming its exposure to traditional utilities. After the sale of 25% of SSEN Transmission, the disposal of a slice of the electricity distribution business is next in line.

Turbo-charging efforts to renewables is a bold move, many would say admirable. But so far SSE's renewables division has been underwhelming. That means the onus is on the traditional business for now.

That brings us to Networks, delivering electricity across Scotland and Southern England. This is classic utility territory - with revenues predictable and profits closely regulated. Historically utilities have been able to pay attractive dividends, and SSE has been no exception. Remember dividends are variable and not guaranteed.

Regulated profits tend to be relatively predictable because prices are set in-line with wholesale costs. The group's benefiting from regulators' decision to increase the energy price cap as the crisis in Ukraine sends the cost of power higher. But the trade-off for this stability is minimal growth.

But the push for renewables puts utilities in a unique position to potentially enjoy steeper growth ahead.

Renewables made up less than half of underlying operating profits last year, but the plan is to more than treble installed generation capacity to 13GW by 2031. This requires a substantial £12.5bn investment over the 5 years to 2026. SSE's 40% interest in the Dogger Bank project, expected to be the world's largest offshore windfarm is a key part of the plan.

The shift to renewables comes with a hefty dose of risk. SSE's pouring money into a yet unproven part of the business. The group needs to strike a delicate balance between positioning itself for future growth and keeping the cash coffers from running dry.

Cash has been something SSE has found hard to come by in the past. It hasn't always generated enough to cover its enormous infrastructure bill, and fund the dividend as well. As a result, keeping net debt to adjusted cash profits (EBITDA) in line has relied on asset sales. Time will tell if SSE further reduces its ownership of its core businesses.

A moderate level of debt is no bad thing, especially for a business with such reliable revenues, but it's still important to keep liabilities in check. The scrip dividend, where dividends are paid in shares rather than cash, is helping ease the burden short term, but has been capped at 25%.

There are external threats as well. Regulatory challenges loom, particularly as ballooning energy prices compound the cost-of-living squeeze that most are enduring at present. Weaning the UK off its gas dependency may help to mitigate this in the future.

The combination of reliable networks and growing renewable energy businesses sounds attractive, but it's costly and adds a layer of risk until SSE starts generating cash more reliably. If SSE gets this transition right investors could enjoy a more sustainable dividend with the potential to grow over time, but "if" is doing a lot of the work.

SSE key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

Latest from Share research
Weekly newsletter
Sign up for editors choice. The week's top investment stories, free in your inbox every Saturday.
Written by
Derren Nathan
Derren Nathan
Head of Equity Research

Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.

Our content review process
The aim of Hargreaves Lansdown's financial content review process is to ensure accuracy, clarity, and comprehensiveness of all published materials
Article history
Published: 25th November 2022