SSE reaped the rewards of changes to household energy price caps as underlying operating profits soared 65% to £2.5bn in the year to 2023.
Changes to the price cap due to surging energy prices meant energy suppliers were given the opportunity to hike prices during the last year.
Clearly conscious of the optics of benefitting at the expense of UK consumers, SSE said they had invested more in CAPEX to help energy security than they made in profits.
Carefully positioned on the first line of the report, SSE confirmed they had allocated £2.8bn to CAPEX and investment during the period – more than the £2.5bn operating profits generated.
SSE’s existing investors will be pleased that even after the significant levels of investment, there was still cash left over to increase the dividend for the 2023FY. However, income-seeking investors may be perturbed that the company is rebasing the dividend to 60p next year to allocate further funds to investment.
The slashing of the dividend signals SSE may soon be viewed as a growth proposition instead of an income play.
SSE shares were 1.2% higher at the time of writing.
“SSE’s networks deliver electricity across Scotland and Southern England. This is classic utility territory – with revenues and profits closely regulated,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.
“SSE’s announced it’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. That reality hit home last year as unseasonably calm and dry weather left the group’s renewable output lower than planned, meaning flexible gas-fired plants had to plug the energy shortfall. Fortunately, these are still part of SSE’s offering and helped to majorly boost profits – allowing the group to surpass its recently upgraded earnings per share (EPS) guidance.
“However, in a bid to free up cash to fund the renewables investment, SSE reiterated its plans to slash its dividend down from 96.7 to 60p next year. Investors reacted positively, with the shares showing small gains in early trading. As we move towards a net-zero world, the need for investment in renewables and networks is clear, and SSE’s ahead of the pack in this regard. But the transition will be costly, and it’ll likely be a long road until renewables can generate cash more reliably, which adds a layer of risk to SSE in the near-to-medium term.”