SSE tests the Japanese waters with £153m deal
SSE’S best known as an electricity provider across Scotland and southern England. As a utility, the group typically enjoys relatively predictable revenues and as an electricity provider, isn’t directly troubled by the current gas supply crisis.
Regulators determine how much profit SSE can keep and the rest is deployed to update infrastructure.
Regulated profits lend themselves to steady, reliable dividends – SSE’s prospective yield is 5.3 per cent. But they don’t deliver much growth. That’s where the group’s Renewables division comes in.
SSE’s been working to carve out a place for itself in the renewables market. The division represented nearly half of underlying operating profits last year and management aims to treble output to a whopping 30 teraWatts (TWh) per year by 2030.
As part of this strategy, SSE recently announced plans to spend £153million on a joint venture with Japan’s Pacifico Energy. The new organisation will have 10GW of early-stage offshore wind development projects already in its portfolio.
It as an important step towards meeting SSE’s 30TWh per year aim, but more importantly it’s the group’s first foray outside of Europe. SSE is increasingly focused on its future as a global renewables giant.
The cost of the acquisition is a drop in the ocean for the wider company, but is almost a quarter of Renewables’ profit.
Cash has been somewhat tight for SSE in the past. Maintaining the group’s infrastructure is a multi-billion-pound undertaking. Debt is something to keep an eye on. The group’s tall infrastructure bills have previously put its debt obligations at more than four times cash profits. Asset sales have helped, but debt’s still uncomfortably high.
SSE’s in the midst of a strategy shift that looks appealing on paper. But we’ll remain cautious until the group starts generating cash more reliably. If SSE gets this transition right, investors should enjoy a sustainable and growing dividend.
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