Energy utility SSE (SSE) is now in positive territory, up 0.1% to £11.75, having traded only modestly lower early on despite a profit warning.

What’s going on? Two factors are probably at play. One is that the warning is linked to an EU court ruling which has forced the UK Government to halt payments under a scheme which paid the likes of SSE to provide back up power capacity at times of high demand.

This will hit earnings by a not immaterial amount – earnings per share for the March 2019 financial year expected to come in at 64p to 69p down from guidance for 70p to 75p given in November.

But investors may be hoping this shortfall could be made up later with the Government saying it expects to make retrospective payments.

WHAT NEXT FOR RETAIL BUSINESS?

Secondly, the company has demonstrated it is not sitting on its hands with regards its consumer energy or retail division.

A failed merger with npower, which would have enabled the company to focus on regulated networks and renewables, now looks likely to be substituted by a standalone demerger, IPO, sale or some kind of ring-fenced structure within the wider SSE group.

Investors won’t have to wait too long to here the next steps as SSE has said it will provide a further update by the end of March.

AJ Bell investment director Russ Mould says: 'The utilities sector was supposed to be a safe, boring part of the market to invest in, offering a predictable stream of income from regulated returns and limited share price volatility.

'Not any longer it seems, with SSE the latest name in the space to undermine this image. Political pressure has been a big factor in the industry's more chequered recent history.

'The established UK energy providers have faced two challenges, with easier switching leading to a competitive threat from smaller challengers and an energy price cap putting margins under severe pressure.'


Issue Date: 08 Feb 2019