Last Update22 Oct 25Fair value Increased 0.12%
Analysts have increased their price target for SSE from £23.00 to £24.25, citing improved outlook and sustained confidence in the company's growth prospects.
Analyst Commentary
Recent equity research reports have outlined both positive and cautious perspectives regarding SSE's future performance. The following summarizes key takeaways identified by market watchers.
Bullish Takeaways
- Analysts highlight increased confidence in SSE's growth outlook, which supports the recent price target upgrade.
- The Overweight rating from JPMorgan signals belief in the company's ability to outperform sector peers over time.
- Positive valuation adjustments reflect expectations for stronger earnings and successful execution of the company's strategic investments.
- Bullish analysts note continued progress in renewable energy initiatives, viewed as a sustainable driver for long-term revenue growth.
Bearish Takeaways
- Some analysts remain cautious about potential execution risks as SSE undertakes significant capital projects to expand its renewables portfolio.
- There is concern that volatile energy markets and regulatory shifts could affect earnings visibility in the near term.
- Cautious perspectives note that while growth prospects are promising, the current valuation already anticipates much of the expected upside.
What's in the News
- On 27 August 2025, SSE announced that 23,080 shareholders elected to receive the final dividend for the year ended 31 March 2025 as a Scrip dividend. This reduced final dividend cash funding by £25.35 million (Key Developments).
- The overall Scrip dividend take-up for the financial year was 9.7%, which was below the 25% cap. As a result, no buy-back to limit dilution will occur (Key Developments).
- 1,369,268 new fully paid ordinary shares will be issued on 18 September 2025, increasing issued share capital by 0.12% compared to the record date of 25 July 2025 (Key Developments).
Valuation Changes
- Fair Value: Revised upward marginally from £22.30 to £22.33 per share. This change reflects a minor positive adjustment.
- Discount Rate: Remains virtually unchanged at 6.82%. This indicates stable assumptions in projected cash flows.
- Revenue Growth: Holds steady at approximately 4.56%. This suggests no material change in expectations for top-line expansion.
- Net Profit Margin: Declined slightly from 20.00% to 19.97%. This signals a modest reduction in projected profitability.
- Future P/E: Increased marginally from 13.08x to 13.12x. This points to a small upward shift in valuation multiples.
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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