SSE PLC (LSE:SSE) (SSE PLC (LSE:SSE)) announced a significant acceleration of its renewable electricity generation programme as it rejected calls from activist investor Elliot Management to break itself up.
Elliott wants SSE to divest its renewables business, but instead, the power generator has accelerated its plans to invest in green energy with GBP12.5bn now earmarked to be spent by 2026.
That represents a 65% step-up in annual investment, the generator said and will enable it to provide 25% of the UK’s 2030 40GW offshore wind target and over 20% of the UK electricity networks’ investment.
In money terms it will allocate an additional GBP1bn a year for renewables, SSE said, with over 2.5 times more capital now allocated to renewables growth.
The additional funding is expected to come from partnering and minority stake sales in both SSEN Transmission and SSEN Distribution by early 2024.
SSE said the spending will mean an additional 4GW of net renewables capacity and be split 40% on networks, 40% on renewables and 20% on flexible generation
Assuming the minority sales go ahead, SSE added it expects to grow earnings at between 5-7% a year until 2026 while dividends over the five years will total at least GBP3.50 per share.
Sir John Manzoni, SSE’s chair, said: “Over the past months the board of directors has carefully considered a range of strategic alternatives for the next phase of SSE’s growth and development.
“Having reviewed all options and taken independent advice, this resulting strategic update significantly accelerates growth in our core businesses, whilst providing efficient and competitive sources of financing and ensuring SSE continues as a reliable and resilient operator of critical infrastructure.
Alistair Phillips-Davies, chief executive, added: “Our Net Zero Acceleration Programme represents the next phase of SSE’s growth and involves a substantial ramping up of investment – equivalent to nearly GBP7m each day in net zero infrastructure – backed up by clear delivery and funding plans.
“Today’s announcement means SSE will maximise its long-term potential and capture growth opportunities during a critical time for the energy sector,”
In the half-year to end September 2021, SSE posted a profit of GBP174mln (GBP134mln) with renewables profitability adversely impacted by exceptionally unfavourable weather conditions.
This was offset by higher volumes and revenue allowances in regulated networks, and a strong performance from non-core businesses, notably gas storage, while a GBP1.2bn derivatives gain also boosted the numbers.
For the full year, SSE said it expects earnings to be in line with analysts’ forecasts of 83p per share, with a full-year dividend of 81p plus RPI inflation signalled but a rebase to 60p from 2023/4.
UBS added that the absence of any spin-out of renewables overshadowed the numbers, but these were above forecasts generally while the new plan looks good.
Guidance implies earnings per share (EPS) 104p in 2025/6 at the midpoint vs consensus 109p, but presumably without minority disposals factored in. UBS’ share target is 1,570p and its investment view ‘neutral’.
Shares in SSE fell 3.8% to 1595.5p.
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