SSE: Rising Price Views Will Support Large-Scale Equity-Funded Project Pipeline

The analyst price target for SSE has been raised modestly from £23.90 to £24.24 per share, reflecting analysts’ increased confidence in the company’s revenue growth trajectory, despite slightly lower margin assumptions and a marginally higher forward earnings multiple.

Analyst Commentary

Recent research updates show a cluster of upward price target revisions for SSE, underpinned by confidence in its long term earnings growth and capital deployment strategy. Bullish analysts cite improving visibility on regulated returns and a robust project pipeline as key drivers of upside to current valuation levels.

While the commentary is overwhelmingly positive, some caution remains around execution risk on large scale projects and the sensitivity of projected returns to regulatory and macroeconomic assumptions, which could affect how quickly the stock rerates towards revised targets.

Bullish Takeaways

Bullish analysts are raising price targets into the mid 2,000s GBp range, implying meaningful upside from current trading levels and signalling confidence that the market is undervaluing SSE’s medium term growth profile.
Upgrades are supported by expectations of steady earnings expansion, driven by a growing renewables and networks asset base that is seen as capable of delivering high visibility, inflation linked cash flows.
JPMorgan’s higher target underscores the view that SSE’s capital investment programme is increasingly de risked, with greater clarity on project execution timelines and potential contribution to returns on equity.
Several forecasts factor in the potential for further operational efficiencies and disciplined cost control, which could support margin resilience and justify a higher forward earnings multiple.

Bearish Takeaways

Bearish analysts remain cautious that the elevated capital expenditure plan may pressure free cash flow in the near term, raising questions about the pace of deleveraging and future shareholder distributions.
There is concern that regulatory shifts or delays in approvals could erode the expected returns from new network and renewables investments, limiting upside to valuations embedded in the latest targets.
Some models highlight the risk that construction and supply chain cost inflation could compress project level margins, reducing the headroom for SSE to outperform current consensus earnings estimates.
Even after the upward target revisions, a portion of the analyst community warns that the shares already reflect a significant portion of the growth story, leaving the stock vulnerable to execution setbacks or weaker power price trends.

What's in the News

SSE has filed a major follow on equity offering of approximately £2 billion in ordinary shares to support its capital investment plans (Key Developments).
The company has declared an interim dividend of 21.4 pence per share for the year ending March 31, 2026, slightly higher than 21.2 pence a year ago, and signalled a final dividend increase of 5% to 10% on 2024/25 (Key Developments).
SSE has filed an additional follow on equity offering of about £7.1 million in ordinary shares under Regulation S (Key Developments).
The company has completed a further follow on equity offering of roughly £7.0 million, issuing 339,342 ordinary shares at £20.50 per share under Regulation S (Key Developments).
SSE is exploring funding options, including a potential multi billion pound share sale, as it looks to finance an accelerated grid spending programme. The company has declined to comment on what it describes as market speculation (Key Developments).

Valuation Changes

Fair Value: Raised slightly from £23.90 to £24.24 per share, reflecting a modest uplift in the intrinsic valuation.
Discount Rate: Held steady at 7.07 percent, indicating no change in the assumed risk profile or cost of capital.
Revenue Growth: Increased meaningfully from approximately 10.4 percent to 11.4 percent, signalling stronger expectations for top line expansion.
Net Profit Margin: Reduced slightly from about 19.1 percent to 18.5 percent, indicating more conservative assumptions on profitability.
Future P/E: Nudged higher from 12.47x to 12.72x, implying a marginally richer valuation multiple on forward earnings.

Strategic investments in renewables and networks are driving predictable profitability and improved future net margins.
Positioned to leverage decarbonization trends, SSE's focus on clean energy signals strong future earnings potential.
Leadership transition and project delays, alongside rising debt and reliance on government policies, pose risks to SSE's strategic growth and earnings stability.

Catalysts

About SSE

Engages in the generation, transmission, distribution, and supply of electricity.What are the underlying business or industry changes driving this perspective?

The company is midway through a 5-year investment plan targeting around £20 billion in CapEx by 2027 to drive long-term earnings growth, indicating substantial future revenue and earnings potential.
SSE is strategically positioned to benefit from accelerating decarbonization and electrification trends, particularly in the UK, EU, and Japan, enabling future revenue growth from expanding clean energy portfolios.
The focus on networks and renewables has led to a significant increase in operating profit from these divisions, showcasing a shift towards more predictable, sustainable profitability, which is likely to improve future net margins.
Investments in new technology and capacity expansions, such as offshore wind and battery projects, are designed to provide high-quality, sustainable earnings growth, suggesting strong future earnings outlook.
SSE's strong balance sheet and capital discipline facilitate increased investment in infrastructure essential for energy transition, creating opportunities for earnings growth through increased asset base and regulated asset value in electricity networks.

SSE Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming SSE's revenue will grow by 7.1% annually over the next 3 years.
Analysts assume that profit margins will increase from 11.7% today to 19.2% in 3 years time.
Analysts expect earnings to reach £2.4 billion (and earnings per share of £2.02) by about September 2028, up from £1.2 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as £2.1 billion.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.6x on those 2028 earnings, down from 14.9x today. This future PE is lower than the current PE for the GB Electric Utilities industry at 14.9x.
Analysts expect the number of shares outstanding to grow by 0.49% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 6.82%, as per the Simply Wall St company report.

SSE Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The transition in leadership as Alistair Phillips-Davies plans to retire may introduce uncertainties that could affect strategic leadership, potentially impacting revenues and investor confidence.
The ongoing issues and delays in projects like Dogger Bank, particularly related to turbine installations, could lead to increased costs and affect the expected returns, thereby impacting net margins and earnings.
Rising adjusted net debt levels, partly due to large capital expenditures on projects, could lead to increased interest expenses, impacting net margins and the company's ability to fund future growth initiatives.
Heavy reliance on expected supportive government policy in the U.K. and geopolitical uncertainties in international markets such as Japan and the EU could pose risks to revenue and strategic growth if these conditions change unfavorably.
Changes in carbon pricing policies or emissions trading, especially in the U.K., could impact the pricing and profitability of SSE's thermal generation assets, affecting overall earnings stability.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of £22.185 for SSE based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £25.0, and the most bearish reporting a price target of just £17.31.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £12.4 billion, earnings will come to £2.4 billion, and it would be trading on a PE ratio of 12.6x, assuming you use a discount rate of 6.8%.
Given the current share price of £16.12, the analyst price target of £22.18 is 27.3% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Analysts Raise SSE Price Target Amid Growth Optimism and Cautious Valuation Adjustments