SSE plc, the Perth-based electricity infrastructure giant, said its capital investment expectations have been upgraded by £2.5 billion to £20.5 billion for its five-year investment programme.
The investment plans are contained in SSE’s results for the six months to September 30, 2023, which showed a swing to a reported pre-tax profit of £573.3 million from a reported pre-tax loss of £511 million for the same period a year prior.
However, SSE revenue in the first half fell to £4.79 billion from £5.63 billion.
Shares in SSE, the biggest listed company run from Scotland, rose about 3% to around £17.66 to give the group a stock market value of more than £19 billion. SSE shares are up 7% for the past year and up 58% for the past five years.
SSE said the planned capital investment increase reflects “increasing visibility over regulated networks spend and associated supply chain costs, with around 90% of the upweighted investment plan expected to be invested in electricity networks and renewables.”
The increase in investment will be solely allocated to its regulated SSEN Transmission business.
SSE reported major progress on flagship projects including first power at Dogger Bank and full power at Seagreen offshore wind farms, with planning and supply chain secured for the Eastern Green Link 2 subsea transmission cable.
The group reported adjusted earnings per share of 37p, ahead of pre-close guidance “and reflecting the normal seasonal nature of operations that deliver the majority of annual earnings in the second half of SSE’s financial year.”
SSE reaffirmed its guidance for full year 2023-24 of more than 150p adjusted earnings per share.
The company reiterated its commitment to target annual dividend increases of between 5% and 10% to 2026-27 “based on an expected 60 pence full year dividend for 2023/24, with retention of the scrip option and dilution from uptake capped at 25%.”
SSE CEO Alistair Phillips-Davies said: “Our performance in the first half of 2023/24 demonstrates SSE’s well-balanced business mix and our ability to adapt and create value while maintaining capital discipline in a fast-evolving energy landscape.
“As visibility of growth options improves, we have upweighted our capex plans to meet the ambitions of the NZAP Plus plan.
“With an enduring broad political consensus behind the need to build the electricity infrastructure required for net zero, a supportive power price outlook, balance sheet strength underpinned by world-class assets and unrivalled optionality across the clean energy value chain, we have increased confidence in our earnings forecasts not only for this year, but out to 2026/27.”
REACTION:
Aarin Chiekrie, equity analyst at Hargreaves Lansdown: “Power utility, SSE, had been hoping for a return to more normal weather in the second quarter, after a slow start to the year for its renewable energy assets. But that didn’t materialise as unfavourable weather conditions have left renewable’s output 19% lower than planned.
“That means other parts of the business are having to pick up the slack, leaving little room for further slippage if full-year guidance is to be hit.
“Looking ahead, SSE’s staying the course with its pivot towards renewable energy. The five-year investment budget’s been increased to a mammoth £20.5bn, with 90% of that set to be invested in electricity networks and renewables.
“Turbo-charging efforts towards renewables is a bold and admirable move. But the shift comes with a hefty dose of risk – they’re not always reliable.
“Fortunately, the Thermal division’s flexible gas-fired plants helped to plug the energy shortfall, and profits here more than tripled.
“But as with all things, there’s some give and take. The upgraded investment budget and plans are likely good in the long term, but it’s putting pressure on the group’s cash resources in the near term.
“So as expected, in a bid to free up cash, the group confirmed it will rebase its dividend down from 96.7p last year to 60p this year.
“That may change the outlook for some investors that own SSE for the supposedly reliable dividend payments.
“Long term though, if SSE can deliver on its promises, shareholders staying the course at current prices will likely be rewarded for their patience in the form of capital gains.”