Profit warnings are a rarity from the utilities space so today’s profits shock from SSE (SSE), one of the UK’s big six energy suppliers, has caught investors on the hop.

Shares in the company have fallen close on 8%, making them the worst performing FTSE 100 stock, and the worst across the 750-odd companies listed on the FTSE All Share index.

The shares are trading at £11.515 as of 11am on Wednesday 12 September.

For the time being the dividend looks safe, the company saying that the dividend is expected to still be 97.5p per share for the year to 31 March 2019. SSE also expects to stick to its five-year dividend plan, implying above inflation increases to the payout.

This is all-important for investors given the hefty income yields typically on offer with utility stocks.

WHAT HAS ROCKED SSE?

The company is basically blaming the weather, plus hefty wholesale gas prices, saying that the ‘relatively dry, still and warm weather’ has hit output from its wind farms and hydro-electric stations.

This effectively blows a £190m hole in operating profits so far this year, and the company now reckons that operating profit for the first half to 30 September will be half the rough £518m of last year.

Chief executive Alistair Phillips-Davies has called today’s news ‘disappointing and regrettable’ but also insists that the ‘underlying quality of SSE’s businesses remains strong.’

Some investors might disagree given the ongoing competitive pressures from emerging independents allowing UK customers to switch away at will. There’s also the government enforced price cap to come into play from January. SSE is also trying to merge with Npower’s UK business.

PUT INTO CONTEXT

‘You could argue that is a reasonable explanation for missing earnings expectations, but shareholders may be furious with the company given how weak its share price has already been since May,’ says Russ Mould, investment director at trading platform AJ Bell.

‘Ultimately it is a good reminder that even seemingly defensive companies still have operational and regulatory risks,’ he adds.

The repercussions continue to ripple across the wider UK utility sector with share prices of British Gas-owner Centrica (CNA) and National Grid (NG.) also under the cosh.

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Issue Date: 12 Sep 2018