SSE Demonstrates Resilience and Growth Amid Calls for Break-up

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Just 18 months ago, energy company SSE found itself under scrutiny as activists called for its breakup. However, with a diverse portfolio and strong performance, SSE’s CEO Alistair Phillips-Davies has weathered the storm and positioned the company for continued success.

The arguments for breaking up SSE centered around its perceived “inefficient” structure. However, the company’s diverse business segments proved beneficial during last year’s energy market upheaval caused by Russia’s invasion of Ukraine. As a result, SSE’s shares are currently trading at a forward earnings multiple of over 12.5 times, making it a more affordable investment compared to some European peers like Iberdrola and National Grid.

SSE’s thermal generation business played a significant role in the company’s adjusted annual pre-tax profits, which soared by 89% to £2.2 billion. With gas-fired power plants in the UK, SSE’s thermal division helps meet electricity demand during periods when renewable sources, such as wind and solar, cannot generate sufficient power. Additionally, SSE Thermal owns gas storage facilities, enhancing its overall business portfolio.

Ironically, SSE’s renewable energy business, which was at the center of the breakup calls, experienced subdued growth due to unfavorable weather conditions last year. The company also faced the impact of a UK windfall tax on low carbon electricity generators, amounting to £43 million. In contrast, less diversified companies like Denmark’s Orsted faced more significant challenges during the same period.

Looking ahead, SSE has ambitious plans for expansion across all three of its business units, including its UK regulated electricity networks. The company recently upgraded its investment plans, committing to spend £18 billion by 2026/27, with half of this investment directed towards networks. Previously, SSE had aimed for £12.5 billion in capital investment by 2025/26. The strong performance of the past year has enabled SSE to avoid selling a stake in its electricity distribution network business to fund its future investments.

However, challenges remain on the horizon. Rising supply chain costs are a concern for SSE, with £2 billion of the investment upgrade allocated to address this issue. Additionally, grid connection delays are causing setbacks for new projects in the UK. SSE also lacks exposure to the lucrative US market, where clean energy companies are capitalizing on the opportunities presented by the Inflation Reduction Act.

Despite these challenges, SSE shares have performed well this year, experiencing a 12% rise. While the specter of break-up calls may still linger, SSE’s solid performance and growth trajectory should help silence its critics, at least for now.

SSE’s ability to adapt, diversify, and deliver impressive financial results positions it as a resilient player in the energy sector. With a focus on expansion and overcoming challenges, SSE is well-positioned to capitalize on future opportunities and continue its growth trajectory.