15th Nov 2023 11:15
(Alliance News) - SSE PLC's half-year results calmed some nerves and took some risk out of its outlook as the firm grapples with some energy sector turmoil and perhaps some equally unpredictable UK government policy.
SSE shares were 1.8% higher at 1,742.00 pence each in London on Wednesday morning.
In the six months that ended September 30, the Perth, Scotland-based energy firm said it swung to a pretax profit of GBP573.3 million from a loss of GBP511.0 million a year prior.
Aiding the swing to profit was a GBP75.3 million boost from "other businesses", swinging from a hit of GBP1.87 billion a year prior.
The company's adjusted pretax profit climbed 1.0% to GBP565.2 million from GBP559.4 million. The adjusted figures exclude discontinued operations relating to the sale of the gas production business.
Revenue fell 15% year-on-year to GBP4.79 billion from GBP5.63 billion, however.
Cost of sales came in 46% lower at GBP3.29 billion compared to GBP6.13 billion, more than offsetting a rise in operating costs, which roughly doubled to GBP847.9 million from GBP396.0 million.
SSE noted "major progress" on its flagship projects, including first power at Dogger Bank and full power at Seagreen offshore wind farms in the North Sea. It also secured the planning and supply chain for Eastern Green Link 2 subsea transmission cable, which will be built between Aberdeenshire and North Yorkshire.
All-in-all, the half-year update was a "solid positive", according to Swiss bank UBS.
"Numbers are a nice beat versus consensus, operational updates are good, and although midterm guidance has not been updated (and the capex increases are backloaded) expectations may be nudged towards the higher end of the range, and perhaps to the possibility of guidance upgrades between now and FY27. In any case, the out-turn seems further de-risked both for the current year, and for the midterm plan," UBS analysts added.
Looking ahead, SSE confirmed its guidance for expected earnings growth. It expects to deliver adjusted earnings per share of over 150p, down from 166.0p in financial 2023, and will provide updated guidance later in the financial year.
Edison analyst Neil Shah hailed SSE's ability to weather unpredictable market conditions.
"The ongoing war in Ukraine has raised energy prices, but oscillations in government policy – from last year's windfall tax to the recent announcement of new oil and gas licences in the King's Speech – have created uncertainty for the sector," Shah commented.
"From these results, it's clear that the company's more diversified energy portfolio has insulated it from some of these tumults. SSE's bread and butter is the generation of electricity from wind power and natural gas – neither of which are as politically controversial as the use of North Sea oil, and so do not face the same constraints on supply. As Europe continues the process of substituting Russian natural gas imports, and as government energy policy reaches a more settled consensus, SSE looks well-placed to take advantage of a greater level of stability in the energy market."
A big focus in the UK energy sector is the move to net-zero, and SSE could be front-and-centre as far as plans to achieve this go, RBC Brewin Dolphin analyst John Moore suggested.
Moore commented: "SSE is in a sweet spot in terms of the UK's transition to net-zero, with plenty of investment opportunities in front of it – but the company has been discerning about where to allocate capital when it needs to be.
"With an attractive rebased dividend – set to increase by between 5% and 10% annually – good prospects ahead, and debt under control, SSE is in a very good position, with the kicker from investments made starting to come through in 2025's numbers."
SSE declared an interim dividend of 20.0 pence per share, down 31% from 29.0p a year prior.
SSE targets a full-year dividend of 60.0p per share for the current financial year ending on March 31, lowered by 38% from 96.7p from financial 2023.
On the dividend, AJ Bell's Russ Mould said while it was expected, the "confirmation of a rebasing of dividends is still a bitter pill for shareholders".
SSE announced plans for the rebased dividend back in November 2021. Prior to that, its dividend policy was UK retail price index-linked.
By Greg Rosenvinge, Alliance News senior reporter
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