Energy company SSE has lost its spark after warning that this year’s earnings will be at the lower end of expectations.
The UK’s second biggest household energy supplier - whose brands include Souther Electric and Scottish Hydro - said half year profits fell by 6.2% to £316.6m, and chairman Lord Smith of Kelvin said:
SSE started this financial year expecting to deal with a number of challenging issues and that has proved to be the case. Electricity market reform, the electricity distribution price control review and the energy market investigation are all taking place at the same time as the run up to the UK general election.
Good progress is being made in streamlining and simplifying the business and in the programme of investment in the energy assets and services customers depend on.
Nevertheless the cumulative impact of a challenging business environment and persistently low production and consumption of energy mean SSE now believes adjusted earnings per share in 2014 will be at the lower end of the range set out in March and therefore be around the same level achieved in 2013.
The news has sent its shares down 31p to £15.49, and analysts at Liberum said:
[There is a] small profit warning in the first half results out this morning. Dividend policy of at least RPI growth is maintained, [with the] company accepting lower cover.
Angelos Anastasiou at Whitman Howard issued a hold note with a £14.47 price target, saying:
SSE’s headline interim numbers are below our estimates, but in the middle of a wide market range. As ever, we would not read too much into interim figures, but we do note a slightly greater element of caution in the statement,
[The previous] range had suggested that that 2014 adjusted earnings per share were expected to be similar or slightly higher than that seen in 2013, but this has now been tempered to just being at “around the same level achieved in 2013”, which was 123.4p (cf our current 2014 forecast of 124.4p).
The shares have been strong performers in recent times, rising 9% since the beginning of August and, given the cautious tone of the statement, we would expect some retrenchment today. However, the cautious tone is not that surprising, given the ongoing Competition and Markets Authority (CMA) investigation into energy supply.
