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SSE

LSE:SSE
Snowflake Description

6 star dividend payer with solid track record.

The Snowflake is generated from 30 checks in 5 different areas, read more below.
SSE
LSE
£13B
Market Cap
  1. Electric Utilities
Company description

SSE plc produces, generates, distributes, and supplies electricity and gas, as well as other energy-related services in the United Kingdom and Ireland. More info.


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3 Month History
SSE
Industry
5yr Volatility vs Market

Value

 Is SSE undervalued based on future cash flows and its price relative to the stock market?

Value is all about what a company is worth versus what price it is available for. If you went into a grocery store and all the bananas were on sale at half price, they could be considered undervalued.
INTRINSIC VALUE BASED ON FUTURE CASH FLOWS
Here we compare the current share price of SSE to its discounted cash flow analysis.value.

The discounted cash flow value is simply looking at what the company is worth today, based on estimates of how much money it is expected to make in the future.

How is this discounted cash flow calculated?

Current Discount
Amount off the current price SSE is available for.
Intrinsic value
43%
Share price is £13.67 vs Future cash flow value of £24.04
Current Discount Checks
For SSE to be considered undervalued it must be available for at least 20% below the current price. Less than 40% is even better.
  • SSE's share price is below the future cash flow value, and at a moderate discount (> 20%).
  • SSE's share price is below the future cash flow value, and at a substantial discount (> 40%).
PRICE RELATIVE TO MARKET
We can also value a company based on what the stock market is willing to pay for it. This is similar to the price of fruit (e.g. Mangoes or Avocados) increasing when they are out of season, or how much your home is worth.

The amount the stock market is willing to pay for SSE's earnings, growth and assets is considered below, and whether this is a fair price.
Price based on past earnings
Are SSE's earnings available for a low price, and how does this compare to other companies in the same industry?
  • SSE is good value based on earnings compared to the Global Electric Utilities industry average.
  • SSE is good value based on earnings compared to the GB market.
Price based on expected Growth
Does SSE's expected growth come at a high price?
  • SSE is poor value based on expected growth next year.
Price based on value of assets
What value do investors place on SSE's assets?
  • SSE is overvalued based on assets compared to the Global Electric Utilities industry average.
X
Value checks
We assess SSE's value by looking at:
  1. Is the discounted cash flow value less than 20%, or 40% of the share price? (2 checks) ( Click here or on bar chart for details of DCF calculation. )
  2. Is the PE ratio less than the market average, and/ or less than the Electric Utilities industry average (and greater than 0)? (2 checks)
  3. Is the PEG ratio within a reasonable range (0 to 1)? (1 check)
  4. Is the PB ratio less than the Electric Utilities industry average (and greater than 0)? (1 check)
  5. SSE has a total score of 4/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations including PE and PEG Ratio.
    Note 2: PEG ratio is based on analysts EPS growth expectations in 1 year (-17.18%).

    Full details on the Value part of the Simply Wall St company analysis model.
X
Discounted cash flow (2 Stage Free Cash Flow to Equity)

The calculations below outline how an intrinsic value for SSE is arrived at by discounting future cash flows to their present value. We use analyst's estimates of cash flows going forward 5 years.

See our documentation to learn about this calculation.

5 year cash flow forecast

Present value of next 5 years cash flows:
£5,559

Terminal Value

Terminal Value = FCF2021 × (1 + g) ÷ (Discount Rate – g)

Terminal Value = £1,826 × (1 + 1.49%) ÷ (8.3% – 1.49%)

Terminal value based on the Perpetuity Method where growth (g) = 1.49%:
£27,217

Present value of terminal value:
£18,270

Equity Value

Equity Value (Total value) = Present value of next 5 years cash flows + terminal value
£23,828 = £5,559 + £18,270

Value = Total value / Shares Outstanding (£23,828 / 991)

Discount to Share Price

Value per share:
£24.04

Current discount (share price of £13.67): 43.14%



Estimate of Discount Rate

The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.

Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)

Discount rate = 8.3% = 1.49% + (0.8 * 8.51%)



Estimate of Bottom Up Beta

The Levered Beta is the Unlevered Beta adjusted for financial leverage. It is limited to 0.8 to 2.0 (practical range for a stable firm). Note the market value of equity is used not the book value (£13,301,580,859).

Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))

0.514 = 0.341 (1 + (1- 21%) (64.19%))

Levered Beta used in calculation = 0.8



Assumptions
  1. The risk free rate of 1.49% is from the 10 year government bond rate in GBP.
  2. The bottom-up beta is estimated by analysing other companies in the same industry.
  3. The Equity Risk Premium is calculated by subtracting the risk free rate from the market return premium (8.51%) (source: Buffet).
  4. The dividend discount model is automatically used for companies in the following industries: Banks, Insurance, Real Estate Investment Trusts (REITs), Diversified Financial Services and Capital Markets.

Future Performance

 How is SSE expected to perform in the next 1 to 3 years based on estimates from 16 analysts?

The future performance of a company is measured in the same way as past performance, by looking at estimated growth and how much profit it is expected to make.

Future estimates come from professional analysts. Just like forecasting the weather, they don’t always get it right!
Annual Growth Rate
0.5%
Expected annual growth in earnings.
Earnings growth vs Low Risk Savings
Is SSE expected to grow at an attractive rate?
  • SSE's earnings growth is positive but not above the low risk savings rate of 2.1%.
Growth vs Market Checks
  • SSE's earnings growth is positive but not above the GB market average.
  • SSE's revenue growth is positive but not above the GB market average.
Annual Growth Rates Comparison
Analysts growth expectations
Super high growth metrics
High Growth Checks
  • SSE's earnings are expected to grow by 0.5% yearly, however this is not considered high growth (20% yearly).
  • SSE's revenue is expected to grow by 0.9% yearly, however this is not considered high growth (20% yearly).
Past and Future Earnings per Share
The accuracy of the analysts who estimate the future performance data can be gauged below. We look back 3 years and see if they were any good at predicting what actually occurred. We also show the highest and lowest estimates looking forward to see if there is a wide range.
Performance in 3 years
In the same way as past performance we look at the future estimated return (profit) compared to the available funds. We do this looking forward 3 years.
  • SSE is not expected to perform strongly, Return on Equity (ROE) in 3 years is estimated to be below 20%.

Improvement & Relative to industry
  • Performance (ROE) is expected to be above the current Global Electric Utilities industry average.
  • A decline in SSE's performance (ROE) is expected over the next 3 years.
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Future performance checks
We assess SSE's future performance by looking at:
  1. Is the annual earnings growth rate expected to beat the low risk savings rate, plus a premium to keep pace with inflation?
  2. Is the annual earnings growth rate expected to beat the average growth rate in earnings of the XX market? (1 check)
  3. Is the annual revenue growth rate expected to beat the average growth rate in revenue of the XX market? (1 check)
  4. Is the annual earnings growth rate expected to be above 20%? (1 check)
  5. Is the annual revenue growth rate expected to be above 20%? (1 check)
  6. Is the Return on Equity in 3 years expected to be over 20%? (1 check)
Some of the above checks will fail if the company is expected to be loss making in the relevant year.
SSE has a total score of 0/6, see the detailed checks below.

Note 1: We use GAAP Net Income Excluding Exceptional Items for our Earnings in all our calculations.

Full details on the Future part of the Simply Wall St company analysis model.

Past Performance

  How has SSE performed over the past 5 years?

The past performance of a company can be measured by how much growth it has experienced and how much profit it makes relative to the funds and assets it has available.
Past earnings growth
Below we compare SSE's growth in the last year to its industry (Electric Utilities).
Past Earnings growth analysis
We also check if the company has grown in the past 5 years, and whether it has maintained that growth in the year.
  • SSE's year on year earnings growth rate has been positive on average over the past 5 years.
  • SSE's 1 year earnings growth exceeds its 5 year annual average (69.8% vs 4.4%)
  • SSE's earnings growth has exceeded the Global Electric Utilities industry average in the past year (69.8% vs 5.1%).
Earnings and Revenue History
SSE's revenue and profit over the past 5 years is shown below, any years where they have experienced a loss will show up in red.
Performance last year
We want to ensure a company is making the most of what it has available. This is done by comparing the return (profit) to a company's available funds, assets and capital.
  • Strong return on shareholders funds (ROE > 20%) last year.
  • SSE performed above the Global Electric Utilities industry average based on Return on Assets (ROA) last year.
  • Performance based on Return on Capital Employed (ROCE) has been diminishing over 3 years.
X
Past performance checks
We assess SSE's performance over the past 5 years by checking for:
  1. Has earnings increased in past 5 years? (1 check)
  2. Has the earnings growth in the last year exceeded that of the Electric Utilities industry? (1 check)
  3. Is the recent earnings growth over the last year higher than the average annual growth over the past 5 years? (1 check)
  4. Is the Return on Equity (ROE) higher than 20%? (1 check)
  5. Is the Return on Assets (ROA) above industry average? (1 check)
  6. Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
The above checks will fail if the company has reported a loss in the most recent earnings report. Some checks require at least 3 or 5 years worth of data.
SSE has a total score of 5/6, see the detailed checks below.

Note: We use GAAP Net Income excluding extraordinary items in all our calculations.

Full details on the Past part of the Simply Wall St company analysis model.

Health

 How is SSE's financial health and their level of debt?

A company's financial position is much like your own financial position, it includes everything you own (assets) and owe (liabilities).

The boxes below represent the relative size of what makes up SSE's finances.

The net worth of a company is the difference between its assets and liabilities.
Net Worth
  • SSE is able to meet its short term (1 year) commitments with its holdings of cash and other short term assets.
  • SSE's long term commitments exceed its cash and other short term assets.
Balance sheet
This treemap shows a more detailed breakdown of SSE's finances. If any of them are yellow this indicates they may be out of proportion and red means they relate to one of the checks below.
Assets
Liabilities and shares
The 'shares' portion represents any funds contributed by the owners (shareholders) and any profits.
  • High level of stock/ inventory/ unsold assets.
  • Total debt is not covered by total short term assets, assets are 0.6x debt.
Historical Debt
Nearly all companies have debt. Debt in itself isn’t bad, however if the debt is too high, or the company can’t afford to pay the interest on its debts this may have impacts in the future.

The graphic below shows equity (available funds) and debt, we ideally want to see the red area (debt) decreasing.

If there is any debt we look at the companies capability to repay it, and whether the level has increased over the past 5 years.
  • SSE's level of debt (140.5% of total debt) compared to net worth is high (greater than 40%).
  • The level of debt compared to net worth has increased over the past 5 years (117.6% vs 140.5% today).
  • Total debt is well covered by annual operating cash flow (25.9%, greater than 20% of total debt).
  • Interest on debt is well covered by earnings (EBIT is 6.6x coverage).
X
Financial health checks
We assess SSE's financial health by checking for:
  1. Are short term assets greater than short term liabilities? (1 check)
  2. Are short term assets greater than long term liabilities? (1 check)
  3. Has the debt to equity ratio increased in the past 5 years? (1 check)
  4. Is the debt to equity ratio over 40%? (1 check)
  5. Is the debt covered by short term assets? (1 check)
  6. Are earnings greater than 5x the interest on debt (if company pays interest at all)? (1 check)
  7. SSE has a total score of 3/6, see the detailed checks below.


Full details on the Health part of the Simply Wall St company analysis model.

Dividends

 What is SSE's current dividend yield, its reliability and sustainability?

Dividends are regular cash payments to you from the company, similar to a bank paying you interest on a savings account.
Annual Dividend Income
Dividend payments
6.75%
Current annual income from SSE dividends. Estimated to be 7.12% next year.
If you bought £2,000 of SSE shares you are expected to receive £1 in your first year as a dividend.
Dividend Amount
Here we look how much dividend is being paid, if any. Is it above what you can get in a savings account? It is up there with the best dividend paying companies?
  • Paying above low risk savings rate (2.3%).
  • Paying above markets top dividend payers (3.98%).
Upcoming dividend payment

Purchase SSE on or before the 'Buy Limit' to receive their next dividend payment.

Dividends are usually paid every 3 or 6 months, you can time your share purchase to take advantage of upcoming dividend payments.
Dividend payment calendar
Historical and Future Dividends
It is important to see if the dividend for a company is stable, and not wildly increasing/decreasing each year. This graph shows you the historical rate to count toward your assessment of the stock.

We also check to see if the dividend has increased in the past 10 years.
  • Dividends per share have been stable in the past 10 years.
  • Dividends per share have increased over the past 10 years.
Current Payout to shareholders
What portion of SSE's earnings are paid to the shareholders as a dividend.
  • Dividends paid are covered by net profit (1.5x coverage).
Future Payout to shareholders
  • Dividends after 3 years are expected to be covered by net profit (1.3x coverage).
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Income/ dividend checks
We assess SSE's dividend by checking for:
  1. Firstly is the company paying a notable dividend (greater than 0.5%) - if not then the rest of the checks are ignored.
  2. Current dividend yield, is there one at all, is it higher than the low risk savings rate, and is it above the top 25% of dividend payers? (2 checks)
  3. Have they paid a dividend for 10 years, and during this period has the dividend been volatile (drop of more than 25%)? (1 check)
  4. If they have paid a dividend for 10 years has it increased in this time? (1 check)
  5. How sustainable is the dividend, can SSE afford to pay it from its earnings today and in 3 years (Payout ratio less than 90%)? (2 checks)
  6. SSE has a total score of 6/6, see the detailed checks below.


Full details on the Dividends part of the Simply Wall St company analysis model.

Management

 What is the CEO of SSE's salary, the management and board of directors tenure and is there insider trading?

Management is one of the most important areas of a company. We look at unreasonable CEO compensation, how long the team and board of directors have been around for and insider trading.
CEO
Alistair Phillips-Davies, image provided by Google.
Alistair Phillips-Davies
COMPENSATION £2,925,000
AGE 50
TENURE AS CEO 4.3 years
CEO Bio

Mr. Alistair Phillips-Davies has been Vice President of Eurelectric Aisbl since June 2015. Mr. Phillips-Davies has been the Chief Executive Officer of SSE plc since July 1, 2013. He leads the Executive Committee and the rest of the SSE team in the day-to-day running and operations of SSE and is responsible for implementing the strategy and policy set by the Board. He also has Board-level responsibility for Human Resources and Corporate Affairs. He served as Deputy Chief Executive of SSE plc since 2012. He served as Deputy Chief Executive of Retail and Wholesale Business at SSE plc (alternative name, Scottish & Southern Energy PLC) from September 2012 to July 1, 2013. He served as the Generation & Supply Director at SSE plc since December 2010 and served as its Member of Management Board. He served as Energy Supply Director at SSE plc since 2002. He joined Southern Electric in February 1997 having worked for HSBC and the National Westminster Bank in corporate finance and business development roles. He also served as Director of Energy Supply Operations at SSE plc and oversaw the introduction of the New Electricity Trading Arrangements. He serves as a Member of Eurelectric Aisbl. He has been an Executive Director of SSE plc since January 2002. He serves as the Chairman of the Risk Committee and has Board level responsibility for Energy Trading, Electricity and Gas Supply, Marketing and Energy Services. He has a degree in Natural Sciences and is a qualified Chartered Accountant.

CEO Compensation
  • Alistair's compensation has increased by more than 20% in the past year.
  • Alistair's compensation appears reasonable.
Management Team Tenure

Average tenure and age of the SSE management team in years:

3.5
Average Tenure
52.3
Average Age
  • The tenure for the SSE management team is about average.
Management Team

Alistair Phillips-Davies

TITLE
CEO & Executive Director
COMPENSATION
£3M
AGE
50
TENURE
4.3 yrs

Gregor Alexander

TITLE
Finance Director & Executive Director
COMPENSATION
£2M
AGE
54
TENURE
15.1 yrs

Tony Keeling

TITLE
COO & Co-Head of Retail
TENURE
0.3 yrs

Sally Fairbairn

TITLE
Director of Investor Relations & Company Secretary

Sam Peacock

TITLE
Head of External Relations

Colin Nicol

TITLE
Managing Director of Networks
TENURE
2.9 yrs

Neil Kirkby

TITLE
Managing Director of Enterprise
AGE
53
TENURE
0.8 yrs

Stephen Forbes

TITLE
Chief Commercial Officer & Co-Head of Retail

Martin Pibworth

TITLE
Wholesale Director & Executive Director
TENURE
0.2 yrs

Finlay McCutcheon

TITLE
Director of Business Energy
TENURE
1.2 yrs
Board of Directors Tenure

Average tenure and age of the SSE board of directors in years:

5.8
Average Tenure
56.3
Average Age
  • The tenure for the SSE board of directors is about average.
Board of Directors

Richard Gillingwater

TITLE
Chairman
COMPENSATION
£369K
AGE
60
TENURE
2.3 yrs

Alistair Phillips-Davies

TITLE
CEO & Executive Director
COMPENSATION
£3M
AGE
50
TENURE
15.8 yrs

Gregor Alexander

TITLE
Finance Director & Executive Director
COMPENSATION
£2M
AGE
54
TENURE
15.2 yrs

Martin Pibworth

TITLE
Wholesale Director & Executive Director
TENURE
0.2 yrs

Jeremy Beeton

TITLE
Independent Non-Executive Director
COMPENSATION
£74K
AGE
64
TENURE
6.3 yrs

Katie Bickerstaffe

TITLE
Independent Non-Executive Director
COMPENSATION
£78K
AGE
50
TENURE
6.3 yrs

Peter Lynas

TITLE
Independent Non-Executive Director
COMPENSATION
£79K
TENURE
3.3 yrs

Crawford Gillies

TITLE
Senior Independent Director
COMPENSATION
£76K
AGE
60
TENURE
2.3 yrs

Sue Bruce

TITLE
Independent Non-Executive Director
COMPENSATION
£63K
TENURE
4.2 yrs

Helen Mahy

TITLE
Independent Non-Executive Director
COMPENSATION
£63K
AGE
56
TENURE
1.7 yrs
Recent Insider Trading
  • No 3 month insider trading information.
Who owns this company?
X
Management checks
We assess SSE's management by checking for:
  1. Is the CEO's compensation unreasonable compared to market cap and profit (greater than 0.5% of the company's profit + 0.03% of market cap)? (1 check)
  2. Has the CEO's compensation increased more than 20% whilst the EPS is down more then 20%? (1 check)
  3. Is the average tenure of the management team less than 2 years? (1 check)
  4. Is the average tenure of the board of directors team less than 3 years? (1 check)
  5. SSE has a total score of 0/6, this is not included on the snowflake, see the detailed checks below.


Note: We use the top 6 management executives and board members in our calculations.

Note 2: Insider trading include any internal stakeholders and these transactions .

Full details on the Management part of the Simply Wall St company analysis model.

Company News

Company Info

Map
Description

SSE plc produces, generates, distributes, and supplies electricity and gas, as well as other energy-related services in the United Kingdom and Ireland. It operates through three segments: Wholesale, Networks, and Retail. The company generates electricity from gas, oil, coal, water, and wind. Its electricity networks transmit and distribute electricity to approximately 3.7 million businesses, offices, and homes through approximately 130,000 kilometers of overhead lines and underground cables; and gas networks distribute gas to approximately 5.7 million homes, offices, and businesses through 75,000 kilometers of gas mains. The company also supplies electricity and gas to approximately 9 million households and businesses under the SSE, Scottish Hydro, Southern Electric, SWALEC, Atlantic, and Airtricity brands. In addition, it maintains and replaces street and highway lighting; designs, builds, owns, and operates networks for electricity, gas, water, and heat; and provides network capacity, bandwidth, and data center services. Further, the company offers energy-related products and services, including home services, such as gas boiler covers, central heating and wiring maintenance and installation, telephone line rental, and calls and broadband services; and supplying, installing, maintaining, and reading meters in the household, commercial, industrial, and generation sectors. The company was formerly known as Scottish and Southern Energy plc and changed its name to SSE plc in September 2011. SSE plc was incorporated in 1989 and is based in Perth, the United Kingdom.

Details
Name: SSE plc
Ticker: SSE
Exchange: LSE
Founded: 1989
Market Cap: £13,301,580,859
Shares outstanding: 991,175,921
Website: http://www.sse.com
Address: SSE plc
Inveralmond House,
200 Dunkeld Road,
Perth,
Perthshire, PH1 3AQ,
United Kingdom
Listings
Exchange Symbol Ticker Symbol Security Exchange Country Currency Listed on
LSE SSE Ordinary Shares London Stock Exchange GB GBP 31. Mar 1993
OTCPK SSEZ.F Ordinary Shares Pink Sheets LLC US USD 31. Mar 1993
DB SCT Ordinary Shares Deutsche Boerse AG DE EUR 31. Mar 1993
BATS-CHIXE SSEL Ordinary Shares BATS 'Chi-X Europe' GB GBP 31. Mar 1993
OTCPK SSEZ.Y SPONSORED ADR Pink Sheets LLC US USD 03. Jan 1900
Number of employees
Current staff
Staff numbers
21,157
SSE employees.
Industry
Industry: Electric Utilities
Sector: Utilities