Looking at what the SSE results announcement means for investors
SSE raises dividend, despite drop in profits as energy competition intensifies
- Scottish energy company reported a 39% drop in pre-tax profit
- In better news, the dividend remains attractive and the year ahead is set to be “one of transition”
- The Share Centre recommends SSE as a ‘hold’ for investors seeking income and willing to accept a low to medium level of risk
SSE’s full year results look disappointing on many fronts; adjusted operating profits were down by 6% while reported profits before tax were down 39% to £1,086m. However, these falls were not as bad as feared leaving the shares to open up modestly in early morning trading.
Part of the decline in profits is down to the competition in the sector with customers switching their accounts to cheaper alternatives which has been an ongoing theme for a number of years. Price caps already introduced for certain types of customers also had an impact.
The group profits were also impacted by rising non-energy costs and increased capital expenditures in its energy transmission and distribution business. The previous year’s profits would have been hard to match given the sale of its gas distribution business.
“Management at SSE described the upcoming year as one of transition as it prepares a segregation of its household energy supply business through a separate share listing. Investors in SSE and other energy suppliers will also have to prepare for the impact on profits from the enactment later this of the Domestic Gas and Electricity Bill and the subsequent cap of energy tariffs.
For investors the key focus remains on the dividend and despite these drab numbers, the dividend yield still remains attractive at around 6.5% and the full year dividend has just been raised 3.7% to 94.7p. Going forward, management are targeting a 3% rise in the dividend in the current financial year, in-line with RPI, and aiming to match RPI all the way out to 2023. Naturally this will be very welcome by investors but question have been asked about its falling dividend cover.
With a modest recovery in the share price, a lacklustre outlook, but still attractive dividend yields, we continue with our Hold recommendation on SSE for investors seeking income and willing to accept a low to medium level of risk.
All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.