On Thursday, Bernstein analysts led by Deepa Venkateswaran adjusted the price target on SSE Plc. (LON:SSE:LN) (OTC: SSEZY) to GBP2,300 from GBP2,325, while the Outperform rating remained unchanged. The $21.32 billion market cap utility currently trades at a P/E ratio of 9.07, near its 52-week low of $18.76.
According to InvestingPro analysis, the stock appears slightly overvalued at current levels. The revision follows SSE's announcement of a substantial potential total expenditure (totex) package in its RIIO-T3 business plan, which has shifted investor focus to the company's funding strategy.
SSE's announced totex figure, which reaches an impressive £31.7 billion, is considered a maximum conceivable amount. It includes approximately 30% of spend that may extend into the next regulatory period. With an EBITDA of $4.97 billion and a strong InvestingPro Financial Health score of 3.18 (rated as GREAT), the company appears well-positioned to manage this expenditure.
Analysts highlighted that the final funding requirements for SSE would be influenced by several factors. These include the size of the totex package, the fast money ratio, and the regulatory asset life for new assets.
The comprehensive funding plan is anticipated to be presented by SSE in May 2026. This timeline allows the company to gain clarity on several fronts, including the RIIO-T3 finalization, updated network plans from the National Electricity System Operator (NESO), and decisions regarding capital allocation for renewable energy projects, ensuring a focus on value creation.
Bernstein's outlook for SSE remains positive, with the Outperform rating sustained despite the minor adjustment in the price target. The company has maintained dividend payments for 34 consecutive years, demonstrating strong financial stability. The firm has also updated its earnings models to reflect SSE's business plan, resulting in marginal changes.
While the forecast for fiscal year 2025 earnings remains largely the same, estimates for 2026 have been reduced by 17p, and for 2027 by 10p. These adjustments are primarily due to anticipated delays in the Dogger Bank project and a negative regulatory true-up in distribution for fiscal year 2026.
In other recent news, UK energy company SSE Plc has seen a significant development as UBS upgraded its stock from Neutral to Buy, setting a new price target of GBP 19.70, up from GBP 19.35. This upgrade comes in the wake of SSE's strategic shift towards lower-risk transmission capital expenditures and Contracts for Difference (CfDs), which are expected to provide a more predictable revenue stream. The company's ability to maintain dividend payments for 34 consecutive years, despite facing setbacks such as higher interest rates and delays in the Dogger Bank wind farm project, has demonstrated its long-term financial stability.
The revised price target reflects the anticipation of higher capacity payments in the late 2020s, according to UBS. The firm's positive outlook on SSE is based on the belief that the company's transition to a business model with lower risk and potential for long-term growth is not yet fully reflected in its current stock price. This transition, along with the company's strategic pivot towards more regulated and stable revenue sources, is expected to mitigate the risks associated with its merchant energy and long-term project pipeline.
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