SSE (LON: SSE) delivered full-year results broadly in line with expectations, but the UK energy group’s shares remain at a discount to the broader sector despite a strong growth outlook, which is a gap that Hargreaves Lansdown analyst Aarin Chiekrie said could narrow as the company’s regulated network business becomes a larger part of the overall group.
SSE’s revenue rose 1% to £10.2 billion for the full year, while underlying operating profit fell 8% to £2.2 billion, driven by an expected decline in Distribution profitability following a one-off inflation adjustment that had boosted the prior year.
The company declared a final dividend of 47.3 pence per share, bringing the full-year total to 68.7 pence, up 7%. Shares were broadly flat in early trading.
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Investment spending is set to increase by more than 38% in the year ahead, rising from £3.6 billion to over £5 billion, as part of a broader £33 billion, five-year capital plan through 2029/30.
Around 80% of that total is earmarked for SSE’s regulated UK electricity networks. Hargreaves Lansdown stated in a note following the results that it favours this shift in focus, explaining that the regulated asset base is expected to grow around 30% annually, with revenues tied to asset values and positively linked to inflation.
Chiekrie said the group’s planned investments are expected to drive double-digit earnings growth over the next few years.
“Despite the relatively strong outlook, the group trades at a discount to the broader sector,” he wrote, adding that they “see the Network businesses as a high-quality asset, and as it becomes a bigger part of the business, there’s scope for this discount to close.”
However, Hargreaves Lansdown cautioned that “the step-up in investment brings execution risks. Any missteps will likely see the valuation punished.”
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