Last Update08 Oct 25Fair value Increased 0.53%
Narrative Update on SSE Price Target
SSE's analyst price target has been raised, climbing by £125 to reflect strengthened profit margins and increased confidence in the company's future earnings potential, according to recent analyst assessments.
Analyst Commentary
Analysts have recently adjusted their outlook on SSE, raising price targets and maintaining confidence in the company's performance. The following summarizes key bullish and bearish perspectives noted in recent research updates.
Bullish Takeaways- Bullish analysts point to sustained improvements in profit margins as a key driver behind raised price targets and positive ratings.
- Recent price target increases reflect strengthened conviction in SSE's future earnings trajectory and operational stability.
- Analysts highlight the company's ability to execute on growth plans, which reinforces the case for valuation upside.
- The maintenance of Overweight ratings underscores a consensus that SSE remains well positioned within its sector despite broader market uncertainties.
- While targets have risen, some analysts caution that further upside is contingent on the company's ability to deliver consistent revenue growth without margin slippage.
- There are concerns that external market volatility or regulatory changes could pose challenges to SSE's valuation momentum.
- Analysts note that the current optimistic targets price in successful execution of ongoing projects, leaving little room for error in future results.
What's in the News
- SSE announced that 23,080 shareholders have chosen to receive the final dividend for the year ended 31 March 2025 in the form of a Scrip dividend, totaling 58,951,063 ordinary shares (Key Developments).
- The overall Scrip dividend take-up for the financial year ended 31 March 2025 was 9.7%. This remains below the 25% cap and eliminates the need for a buy-back to limit scrip dilution (Key Developments).
- 1,369,268 new ordinary shares will be issued on 18 September 2025. This represents a 0.12% increase in issued share capital, based on the dividend record date of 25 July 2025 (Key Developments).
- The Scrip Reference Share Price for the final dividend was set at 1,849 pence per ordinary share (Key Developments).
Valuation Changes
- The Fair Value Estimate has risen slightly, increasing from £22.18 to £22.30 per share.
- The Discount Rate remains virtually unchanged and stays steady at approximately 6.82%.
- The Revenue Growth forecast has fallen significantly, decreasing from 7.07% to 4.56%.
- The Net Profit Margin has improved, moving up from 19.20% to 20.00%.
- The Future P/E Ratio has risen modestly, climbing from 12.64x to 13.08x.
Key Takeaways
- 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.
- 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.
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