On Thursday, Bernstein’s analysts, led by Deepa Venkateswaran, updated their price target for SSE Plc. (LON::LN) (OTC: SSEZY) from GBP 2,325 to GBP 2,300, while maintaining an Outperform rating. Currently, the utility, which has a market capitalization of $21.32 billion, trades at a P/E ratio of 9.07, close to its 52-week low of $18.76.
InvestingPro’s analysis indicates that the stock is slightly overvalued at its present price. This revision comes in light of SSE’s announcement regarding a significant potential total expenditure (totex) package as part of its RIIO-T3 business plan, prompting investors to reconsider the company’s financing strategy.
SSE’s anticipated totex figure of £31.7 billion is seen as a maximum amount, with about 30% of the expenditures expected to span into the next regulatory period. Given an EBITDA of $4.97 billion and a strong InvestingPro Financial Health score of 3.18 (classified as GREAT), the company seems well-equipped to handle this spending.
Analysts noted that SSE’s final funding needs will depend on various factors, including the total size of the totex package, the rate of quick returns, and the regulatory asset life for new developments.
SSE is expected to unveil a detailed funding plan by May 2026, which will clarify numerous aspects, including the finalization of RIIO-T3, revised network strategies from the National System Operator (NESO), and capital allocation decisions for renewable energy initiatives, all while focusing on creating value.
Bernstein maintains a positive view on SSE, retaining the Outperform rating even after slightly adjusting the price target. The company has a remarkable record of preserving dividend payments for 34 years, indicating strong financial resilience. The firm has also revised its earnings models in alignment with SSE’s business strategy, resulting in minimal changes.
While earnings projections for fiscal year 2025 remain stable, estimates for 2026 have been lowered by 17p and for 2027 by 10p. These modifications stem mainly from expected delays in the Dogger Bank project and a negative regulatory adjustment in distribution for fiscal year 2026.
In related developments, UBS recently upgraded its rating for UK energy firm SSE Plc from Neutral to Buy, increasing the price target from GBP 19.35 to GBP 19.70. This upgrade follows SSE’s strategic shift towards more stable, lower-risk transmission capital expenditures and Contracts for Difference (CfDs), which are anticipated to generate a more reliable revenue stream. The company’s consistent dividend payments for 34 years, despite challenges such as rising interest rates and delays in the Dogger Bank wind farm project, underline its financial stability.
The revised price target reflects expectations of increased capacity payments in the late 2020s, as per UBS. The firm is optimistic about SSE’s transition to a business model characterized by lower risk and potential for long-term growth, which they believe is not yet fully priced into the stock. This shift, paired with a strategic focus on more regulated revenue sources, is expected to reduce the risks tied to its merchant energy operations and lengthy project timelines.
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