SSE share price powers up ahead of full-year earnings

The SSE stock price have been trending upwards in the year-to-date as the company prepares to report full-year fiscal 2022 earnings this week, with profits expected to rise on the back of the recent hike in energy prices.

SSE [SSE.L] expects to report a positive jump in profit thanks to rising energy prices when the UK-listed supplier unveils its preliminary results for the year to 31 March 2022 on 23 May.

In March, the FTSE 100 company upgraded its full-year earnings projections, after its gas and hydroelectric plants benefitted from a sharp hike in energy prices following the start of the Russia-Ukraine war. The company said it anticipated earnings per share in the range of 92­–97p, compared with guidance the previous month of a minimum 90p. In February, it forecasted profits of close to £1bn for the year as gas prices spiked.

The updated guidance has helped to boost the SSE share price, which had risen 17.8% year-to-date to close at 1,912.5p on 20 May. Over the past year, the stock has rocketed 33.5%.

SSE — previously Scottish and Southern Energy — is one of the UK’s big six regional electricity distribution companies and serves around 5 million households, according to the company’s website. Energy companies have seen record profits as bills soar — though, as pressure mounts, a windfall tax might be on its way for energy producers to help struggling households manage. The cap on energy prices, set by regulator Ofgem, changed in April, with the average price per household predicted to jump 54% from £1,277 to £1,971.

Can SSE deliver a second annual profit surge?

In 2020, SSE saw the biggest profits of the big six giants, at £609m. Off the back of the rise in capital, the company said in its third-quarter trading statement in early February that it intended to deliver a full-year dividend of 81p per share plus a retail price index adjustment.

SSE reported early progress with its Net Zero Acceleration Programme, including headway with its carbon capture projects in Lincolnshire and Scotland.

For the 2020/21 trading period, SSE was still reacting to the Covid-19 pandemic, reporting that its operating profits were down £170m. It announced adjusted operating profits of £1.5bn, an increase of 1%, while its renewables arm increased by 29% from £576.3m to £731.8m for the year.

UK’s largest renewable energy portfolio

Going greener is a crucial target for energy companies, particularly as countries seek to reduce reliance on Russian oil and gas. SSE appears to be beating the competition in the bid to meet the government’s Net Zero Strategy and decarbonise the economy. It has the largest renewable electricity portfolio in the UK and Ireland, recently steering its business away from fossil fuels towards hydro and wind power.

In May 2021, Alistair Phillips-Davies, SSE’s CEO, said: “The UK is leading the world in the decarbonisation agenda and SSE is powering that change – we want to keep the momentum up and ensure the economic recovery helps tackle the climate emergency too.”

This year, SSE is channelling £2bn into low-carbon electricity projects, including the world’s biggest offshore wind farm at Dogger Bank in the North Sea, with plans to spend £12.5bn by 2026.

Analysts are optimistic ahead of earnings

The consensus among nine analysts polled by MarketBeat is to ‘buy’ SSE stock, with five offering this recommendation. They have a median target of 1,810.5p, 5.8% lower than its closing price on 20 May.

On 12 May, Berenberg Bank upgraded its rating on SSE from ‘hold’ to ‘buy’ and increased its target price from 1,690p to 2,200p. The bank called the stock a “buying opportunity” and noted that it sees “increasing confidence” in SSE. “We raise our forecasts for the business to reflect the increase in its investment in renewables and networks,” its note said.

However, ahead of earnings, Laura Hoy, an analyst at Hargreaves Lansdown, warned SSE’s debt was a figure to watch “Management is expecting net debt below £9bn, which is still roughly 4 times forecast cash profits.” She pointed out SSE’s renewables segment makes up only 7% of its operating profits, with management expecting “output from renewables to be 12% below its target”, due to worse-than-expected weather.