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(Alliance News) - SSE PLC on Wednesday outlined plans to sell off some of its electricity network assets, rebase its dividend, and markedly lift renewables spending, as the utility eyes boosting its "clean energy champion" credentials.
In addition to outlining plans to invest GBP12.5 billion by 2026, SSE also presented its first-half results, with numbers showing a decent earnings rise.
The stock was down 4.0% at 1,592.00 pence each in London on Wednesday morning, one of the worst large-cap performers, though off its intraday low of 1,539.50p.
Dubbed its plan the 'net zero acceleration programme', the Perth, Scotland-based utility said the new GBP12.5 billion capital expenditure schedule represents 65% uptick in annual investment. Over two-and-a-half times more cash will go towards renewables growth, SSE added, helping the power utility to double renewables capacity.
Supporting the plan will be 25% stake sales at both its SSEN Transmission and SSEN Distribution arms. The announcement confirmed a report by Bloomberg on Tuesday that said SSE was mulling selling a stake in the assets.
"SSE's five-year strategic capital investment plan to 2026 will deliver significantly enhanced investment in a balanced mix of low-carbon infrastructure split approximately 40-40-20 across networks, renewables and other net-zero-aligned business that fit strategically within the group, while retaining a strong investment-grade credit rating. It will be fully funded through operating cashflows, debt funding and further partnering, including assumed minority 25% stake sales in both SSEN Transmission and SSEN Distribution," the company said in its strategic update.
"Net zero acceleration programme represents the optimal pathway to consolidate SSE's position as UK's clean energy champion, enabling delivery of over 25% of UK's 2030 40GW offshore wind target and over 20% of UK electricity networks investment, whilst deploying flexibility solutions and exporting renewables capabilities overseas."
Across the five years, SSE plans to pay a total dividend of GBP3.50. Its current dividend policy is UK retail price index-linked and runs to March 2023. After this, it will rebase its dividend to 60 pence, with "attractive annual growth of at least 5%" to March 2026.
In the financial year that ended this past March, SSE paid 81p in dividends, up slightly from 80p a year earlier. In financial 2019, its payout totalled 97.5p.
Brewin Dolphin analyst John Moore commented: "In recent years, the friction for the company has been between its need to invest in green energy infrastructure and generation and its desire to pay an attractive dividend – a dilemma of even more relevance in the post-COP26 world."
In the six months that ended September 30, SSE earnings climbed.
Pretax profit more than doubled year-on-year to GBP1.69 billion from GBP779.4 million. Revenue rose 26% to GBP3.54 billion from GBP2.82 billion.
SSE raised its interim payout by 4.5% to 25.5p from 24.4p.
Adjusted earnings per share increased 44% to 10.5p from 7.3p a year earlier. SSE expects annual adjusted EPS to be at least in line with consensus forecasts of 83p. This could represent a 5.1% fall from 87.5p.
SSE predicts adjusted EPS growth thereafter, however. Under forecasts outlined in its strategic update, it tips a compound annual growth rate between 5% and 7% to the financial year ending March 2026.
"Over the past months, the board of directors has carefully considered a range of strategic alternatives for the next phase of SSE's growth and development. Having reviewed all options and taken independent advice, this resulting strategic update significantly accelerates growth in our core businesses, whilst providing efficient and competitive sources of financing and ensuring SSE continues as a reliable and resilient operator of critical infrastructure," Chair John Manzoni said.
Chief Executive Alistair Phillips-Davies added: "Today's announcement means SSE will maximise its long-term potential and capture growth opportunities during a critical time for the energy sector, strengthening and growing its core businesses, creating jobs, delivering for wider society and offering attractive shareholder returns."
Moody's Investors Service weighed in on one the plans, shifting its outlook on the company to stable from negative. It affirmed SSE's Baa1 long-term issuer and senior unsecured ratings and the Baa3 ratings on the company's hybrid instruments.
"Today's rating action reflects Moody's expectation that notwithstanding the planned increase in investments, SSE will be able to restore its financial profile to the level commensurate with a Baa1 rating owing to earnings growth coupled with balance sheet protective measures, including a reduction in dividends and asset disposals," Moody's said.
SSE in September backed its net zero-aligned strategy and pushed back on press reports over a possible break-up of the company.
The Telegraph had reported SSE was close to being split into two separate blue-chip companies following pressure from US activist fund Elliott Management.
By Eric Cunha; ericcunha@alliancenews.com
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