Thursday, 27 February 2020

SSE - Portfolio Addition

SSE (formerly Scottish & Southern Energy) is a FTSE 100 company operating in the energy business across the UK and Ireland. Tackling climate change is at the center of their operations and their aim is to be a leader in a low carbon world through significant future investment in renewable energy and storage solutions.

Last month they disposed of their retail Energy Services arm to Ovo and going forward the bulk of operating profits will be generated from regulated electricity networks and renewables which are core elements of their low carbon strategy and the reason I have taken another look at this company.

SSE Renewables

In late 2018, the company announced it would consolidate its renewable energy assets under the single entity of SSE Renewables. The current portfolio has around 4GW of both offshore and onshore wind as well as hydro which includes 300MW of pumped storage and 750MW of flexible hydro. It has the largest offshore wind pipeline of future projects in the UK and Ireland of over 7GW.

SSE in partnership with Equinor are engaged in the construction of the world's largest offshore windfarm in the North Sea which will generate 3.6GW of clean electricity, sufficient to power 4.5m homes and using the world's most powerful turbines, the GE Halidade-X. The windfarms are due to start operations in 2022.

Dogger Bank Wind Farm

Last year, renewable accounted for around one third of profits however over the coming decade they plan to treble renewable output to 30TWh per year which would be enough to power the whole of Scotland.

Results

According to the latest Q3 trading update SSE Renewables output increased by 6.3% in the first 9 months which was 5% lower than expected. The company confirmed that operations at its last coal power station will cease in March and they are working on plans to dispose of gas production assets over the coming year.

Adjusted earnings are on track for around 85p per share and the expected full year dividend is 80p (interim 24p to be paid in March and final in Sept). At the current share price of 1602p, this gives a yield for shareholders of 5.0%. Full year results are due 22nd May.

To Conclude

SSE will be pleased to have disposed of its retail energy service arm to Ovo following the failed attempt to offload to nPower last year. The plans to wind down coal and gas, decarbonise the business model and focus on renewables is clearly the way to go in my book - I would not have added to my portfolio otherwise!

The new Government have pledged to increase the UK's offshore wind capacity from 8.5GW to 40GW over the coming decade. This is a very significant shift in our approach to energy as we move away from fossil fuels and should give confidence to the renewables industry and provide profitable opportunities for the established operators such as SSE and Orsted.

3 Yr Share Price (click to enlarge)

The share price has been under pressure in recent years but seems to be back on an upward trend these past few months and a rise of 60% since last May. Obviously with the wider market sell-off, there has been some pull back over the past week or so but much less than the FTSE 100 index. The shares were added to my ISA at the price of £16.00.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

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