Warm weather and higher energy costs are to blame.
SSE management sweat as profit warning is issued
- SSE shares have taken a sharp drop as performance over the first five months of the financial year disappoints investors
- The group blame the warm weather and high energy costs for the hit to profit
- We continue to recommend SSE as a medium risk hold for income seekers
This morning Scottish energy company SSE updated the market with a disappointing trading update. Shares responded with a fall of 8.6% in early trading and are now at a 5-year low, which is a reflection of the growing pressure that the utility sector has been under, be it from politicians, regulators and now the weather.
The ‘Big Six’ supplier reiterated from a warning issued earlier this year that it would suffer as warm temperatures reduce the need for heating. The challenging weather conditions cost the company £190m in the first five months of its financial year as its operating profit waned, leading to expectations that operating profit will be around half of that delivered last year.
There has also been lower than expected output from renewable energy sources and less demand while the lack of rain and wind resulted in lower renewable electricity generation. A further negative was commented on the recent proposed price cap from the regulator which will hit profits of its Energy Services business.
The CEO describes the financial performance as being “disappointing and regrettable” but insisted: “the underlying quality of SSE’s businesses remains strong.” The all-important dividend is expected to still be 97.5 pence for the year and so it expects to stick to its 5-year dividend plan
Meanwhile, the profit warning has hit others in the sector and for investors may have clouded and increased pressure on dividends in the future
We maintain our ‘hold’ recommendation for SSE shares and continue to prefer National Grid in the sector.
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.