SSE upgraded its full-year Earings Per Share (EPS) guidance from at least 150p to more than 160p. This reflects a "strong performance" from flexible generation to boost supply, which more than offset lower than planned renewables output.
SSE remains on course to deliver record investment this year, in excess of £2.5bn.
The intention to pay a full-year dividend of 85.7p per share plus RPI for 2022/23 has been reiterated. This is expected to drop to 60p in 2023/24 to help support the group's "significant" investment and growth plans. Thereafter SSE intends to increase dividends by at least 5% per year for the next two years However, no dividends can be guaranteed.
The shares 2.8% following the announcement.
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Our view
SSE's upgraded its earnings guidance twice since the new year, as a result of a strong performance from the group's flexible gas-fired plants.
Looking ahead, SSE's staying the course with its pivot towards renewable energy. Turbo-charging efforts to renewables is a bold and admirable move. But the shift to renewables comes with a hefty dose of risk - they're not always reliable. To some degree, it's at the mercy of mother nature. Unseasonably calm and dry weather this winter left the group's renewable output lower than planned meaning flexible gas-fired plants will still have to plug the energy shortfall for now. Fortunately, these are also part of SSE's offering and can help to smooth its revenue profile.
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.
However, in a bid to free up cash for growth and further renewables investment, the group now plans to rebase its dividend from more than 85p down to 60p, beginning in 2023/24. This is a stark reminder that dividends are variable and not guaranteed. The group needs to strike a delicate balance between positioning itself for future growth and keeping the cash coffers from running dry. 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%.
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. While a moderate level of debt is no bad thing, especially for a business with such reliable revenues, it's still important to keep liabilities in check. Time will tell if SSE further reduces its ownership of its core businesses to generate cash.
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 can start 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
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