Scottish & Southern Energy Live Discussion

marktime1231 13 Nov 2019

SSE a buy-and-hold again? It is possible that the judicial process comment in the interim report was connected to the decision in the High Court today against Ofgem. SSE were a joined party in the case of British Gas winning a grant of judicial relief against the initial price cap in Q1 2019, basically the big 6 were stitched up by Ofgem making unfavourable flawed assumptions about the hedging of wholesale energy prices. I think British Gas say it cost them £70M, pro rata SSE might be in line for a £40M windfall. Obviously the old price cap regime cannot be undone, so the relief would presumably come from an increase in a future price cap. Hardly good for the consumer is it, Ofgem not only got it wrong but refused to listen to everyone telling them so, something the court criticised, and even now is excusing rather than correcting its behaviour. Time to shake them up. As to sleeping on what we think of SSE in the light of its opaque report, I am not so deeply in the red to need to hold for a long term recovery. I will sleep on it too, but if in the coming weeks the sp rises to meet the 24p interim dividend it will be hard to resist offloading.

Bahia_Prince 13 Nov 2019

SSE a buy-and-hold again? Marktime1231, I certainly agree with all of the points in your post, particularly the final point in not investing in things you don’t understand; got caught out this way on another holding I had earlier this year. I have re-read the half year report twice now today, and even after 25+ years of investing in shares, the best I could come away with was a “gut feel that things are perhaps turning around”, but at the same time “an itching between my shoulder blades” that this could end fairly badly. So in truth, I am no more comfortable about this holding than I suspect you are. I will sleep on it further, but suspect that my most likely decision will be to continue to hold until after the outcome of the General Election is known? Think this will have further to bounce if there is a reasonable Conservative majority? As I have said previously, I am still a little under water on this one, and would like to recover my original capital if I can. All the best in your own decisions though. BP

marktime1231 13 Nov 2019

SSE a buy-and-hold again? Not easy to understand the financials in the SSE interim report, clouded by all the adjustments and the transition taking place. But the headlines reinforced the idea SSE is a sound prospect. The rebased dividend likely to be covered going forward, and we don’t really need to know the rest. Do we? Among the many things I did not understand are the status and consequence of gas production assets held for the sale, the impact of writing off £491M unrealised value from the sale of Retail to OVO, the origin and effect (and real meaning) of Energy Portfolio Management an accounting exercise which seems to strip huge sums from the bottom line, and the throw away statement in the outlook section about challenges ahead including … “public policy outcomes becoming the subject of judicial processes” Is SSE signalling it would fight renationalisation in the courts, or is this referring to something else? Actually I am so confused I am minded to find an opportunity to exit, after all you are not supposed to invest in things you don’t understand. And I really don’t understand.

Eadwig 31 Oct 2019

Dividend Cut? Donald Trump has thrown his full weight behind the Johnson campaign and condemned Jeremy Corbyn. I do hope that Remainers make sure that this is used in precisely the same way as Obama’s ‘intervention’ in the Brexit referendum was used by Leavers.

Eadwig 31 Oct 2019

Dividend Cut? Bahia_Prince: I am not unduly alarmed at the moment, but certainly don’t want to sell at a further loss as I currently have a few other strugglers as well, including a smaller holding in BT and a much larger holding in IMB (big ouch!!) Certainly a clear Conservative majority might help to restore my capital position in SSE. I also inherited LLOY, IAG, Rolls Royce, Centrica, Persimmon (2/5ths sold at a loss, this made up about 50% of the portfolio value, all of which have had their own issues of late and are also heavily dependent on Brexit outcomes. All heavily underwater now on the book value at the date of death. I’m still wondering if I should sell SSE (despite what I said above) as it is the only real obvious beneficiary other than Centrica from a Johnson majority followed by Brexit (and very possibly a No Deal Brexit). Centrica is 50% down on the value placed on it that we already paid 40% IHT and is a very small value anyway, so not a big deal one way or the other. I did sell Nat Grid already (at a profit on the book value) which would have also been a possible hedge against a Johnson victory, so you can see my dilemma. Thomas Cook was also in the mix and is 95% down with no chance of seeing that back, plus BDEV (sold for profit), M&S (sold at loss), BP (sold at profit) and a couple of other minor holdings. BT, BAe, RDSB all around break even at the moment and I’m holding them to try and pick the best time to sell. A very tricky business all in all, given that it isn’t just my inheritance and on top of managing my own portfolio which I’ve spent the last 3 years ridding myself of things too much related to the Brexit outcome. I’d just about got there and now I have it all to do again, but to an even greater extent and with less time (probably!). Thanks for your good wishes. Same goes to you, Very difficult times when classic defensive stocks like the utilities come under such political pressure just as we are approaching, very probably, a global downturn too. I managed to exit Centrica on the back of Cameron’s win in 2015 @275p with a small profit. To think after 2 major dividend cuts it is @72.5p today. Eye-watering stuff, and almost all down to politicians on both sides deciding prices are too high and dividends too large in the sector.

Bahia_Prince 31 Oct 2019

Dividend Cut? I understand that position Eadwig, and agree that a Labour win would be particularly bad for these shares. I bought them approximately 30 months ago at around £14.40 for income, so I am well underwater at the moment, but less so than a few months ago when they dropped to circa £10.50. I am not unduly alarmed at the moment, but certainly don’t want to sell at a further loss as I currently have a few other strugglers as well, including a smaller holding in BT and a much larger holding in IMB (big ouch!!) Certainly a clear Conservative majority might help to restore my capital position in SSE. Wishing you all the best with your own personal decision though. BP

Eadwig 31 Oct 2019

Dividend Cut? OK, thanks for the responses. Not very clear is it? I’ve inherited these @1232p and I think the wiser course will be to sell them before any election outcome, or even too many polls that seem to predict an outcome, while there is still some capital profit to show. Rather than wait until Jan ex-div date, only an interim anyway, and now on the wrong side of the election date. I expect any stronger than currently expected Labour showing in the polls, or a surprise election win, will hit utilities pretty badly. An indicated Johnson win will probably result in a rise, but it seems like a gamble with the modest profit currently on offer. It is a decision not just for me but for my co-inheritors also, so probably better to err on the side of caution.

Bahia_Prince 31 Oct 2019

Dividend Cut? Hmm… Digging further back into my memory, the “motivation” for the cut was part of the plan to split the retail arm off (and merge it with Npower I think?); the idea being that we would retain shares in SSE with 80p div, and receive new shares in the merged “NewCo” that may or may not have paid a dividend. That deal of course fell through, and OVO(?) now in frame to buy the retail arm from SSE (but that deal itself now under investigation by competition authorities). This would have brought funds in for some modest debt reduction (few hundred million), but SSE still stated that they would remain on track for their new 3 year dividend policy, i.e., 80p + future modest annual rises. Happy to be corrected by others though? BP

Hydrogen_Economy 31 Oct 2019

Dividend Cut? Div cut was announced in May 2018 results and tied in with the demerger/sale of the retail business which turned into its own saga . Relevant section of the 2018 announcement copied below. At 80p yield is still 6% and according to forecast statutory eps barley covered through 2022 but with so many moving parts I wouldn’t put too much store by the forecasts but at least Sp has recovered well since June. H2 Outlook for 2018/19 to 2022/23 SSE’s strategy is to create value for shareholders and society from developing, owning and operating energy and related infrastructure and services in a sustainable way, and at its core will be regulated energy networks and renewable energy. The financial objective of this strategy is to remunerate shareholders’ investment through the payment of dividends. SSE believes that its dividends should be sustainable, based on the quality and nature of its assets and operations, the earnings derived from them and the longer-term financial outlook. In line with this, taking account of the impact of the expected key developments in 2018/19, and reflecting the underlying quality and value of its assets and earnings and the cash flows they deliver, SSE’s plan for the dividend for the five years to 2023 is as follows: •For 2018/19, SSE is intending to recommend a full-year dividend of 97.5 pence per share, an increase of 3% on 2017/18, which is broadly in line with expectations for RPI inflation. This provides clarity in a year of transition and is not subject to the timing of either the SSE Energy Services transaction or the Domestic Gas and Electricity (Tariff Cap Bill). •For 2019/20, SSE is planning to set the first post-transaction dividend at 80.0 pence per share, which reflects the impact of the changes in the SSE group expected to take effect by then. This provides a sustainable basis for future dividend growth. •For 2020/21, 2021/22 and 2022/23 SSE is targeting annual increases in the full-year dividend that at least keep pace with RPI inflation. This reflects SSE’s confidence in the quality and value of its assets and earnings and cash flows they deliver. This plan for the dividend for the five years to March 2023, when the current electricity distribution Price Control comes to an end, supersedes SSE’s previous reference to a dividend cover range and is a plan which: •Aims to provide shareholders with certainty in 2018/19, a year of transition for SSE; •Reflects the changes in the SSE group expected to take effect by the start of the 2019/20 financial year; and •Sets the dividend on a path for sustainable growth for the three years from 2020. SSE intends to retain a Scrip dividend scheme but where take-up of the full-year dividend exceeds 20%, SSE now intends to buy back shares so the dilutive effect of the Scrip is limited. In addition to the dividend plan above, subject to the necessary approvals being secured, the transaction relating to SSE Energy Services announced on 8 November means shareholders in SSE will receive one share in the planned new independent energy supply and services company for every one SSE share they hold at the demerger record date.

Eadwig 30 Oct 2019

Dividend Cut? Bahia_Prince: From memory, SSE have indicated that the dividend is to be rebased at a total of 80p for the 2019 financial year, increasing thereafter in line with inflation. ‘Re-based’ to 80pps - yes, that sounds like a disguised cut to me given that the total divi last year was 95.5pps which would explain why the site I linked to is showing them as having cut, or announced a cut, to their dividend. I wonder what the motivation is? A lot of companies where profits were not really affected during the financial crisis but the share price dropped along with the whole market found themselves yielding so much they seemed to think it was ok to cut the dividend because their yield still remained relatively high. As an investor I’m very unimpressed with that sort of thinking. Anyway, thanks for taking the time to respond. If anyone does have a link to the relevant SSE announcement I’d appreciate it - I haven’t been able to immediately find it myself and am hoping someone can save me some time by pointing me in the right direction. Just to confirm your memory is correct, @Bahia_Prince Thanks again

Bahia_Prince 30 Oct 2019

Dividend Cut? Eadwig, From memory, SSE have indicated that the dividend is to be rebased at a total of 80p for the 2019 financial year, increasing thereafter in line with inflation. Sorry, but don’t have link for that; I’m sure that there more organised than me may have though? BP

Eadwig 30 Oct 2019

Dividend Cut? Although I can see nothing in the history, examining a table of dividend payers in the FTSE 100 SSE are marked as a company that has cut, or has announced a cut, ion its dividend. Having inherited a load of these I’m in possession of the stock but not the facts. Can anyone enlighten me so I can make a better decision based on whether or not to sell in case of a Corbyn election victory. SSE divi history … EPIC Name Market Dividend Type Declaration Date Ex-Dividend Date Payment Date SSE SSE FTSE 100 68.2p Final 22-May-19 Dividend Announcement 25-Jul-19 20-Sep-19 SSE SSE FTSE 100 29.3p Interim 14-Nov-18 Dividend Announcement 17-Jan-19 15-Mar-19 SSE SSE FTSE 100 66.3p Final 25-May-18 Dividend Announcement 26-Jul-18 21-Sep-18 SSE SSE FTSE 100 28.4p Interim 08-Nov-17 Dividend Announcement 18-Jan-18 16-Mar-18

marktime1231 24 Oct 2019

SSE a buy-and-hold again? Maybe not 1500p in the short term, and there is no harm in waiting to see how things develop. But I am much more confident about the long term prospects of SSE and its ability to be a sustainable dividend hero. So I am holding on through this recovery rather than cashing in. And would be more confident in adding if sentiment swings back round and the share price slumps into obvious bargain territory.

Bahia_Prince 24 Oct 2019

SSE a buy-and-hold again? A well considered and balanced post maritime, and thanks for your thoughts on this. I have been holding some of these for around 3 years now, so currently still a bit under water, but as you point out, with a considerably improved position since July. I have pencilled in revised divis of 25p and 55p, but as we know, it will not be more than the 80p. I am quite happy with this level for now. Not sure if it is quite capable of achieving the 1500 yet as I think it will continue to swing a bit yet in the rapidly moving political environment. Will certainly continue to hold, but unlikely to add in the meantime. Thanks BP

marktime1231 24 Oct 2019

SSE a buy-and-hold again? Good news today, the EU has decided to release its suspension of Capacity Market payments, which means SSE can now receive the £140M or so which has been held back and is long overdue. Not sure if this will alter bottom line profit as reported, the income may already have been accrued since this resolution was expected, but it will provide a healthy cash flow boost when the payment lands. News of a squabble with OFGEM over the cost of new connections to proposed wind farms off the Western Isles and Shetland is not good, since the schemes had previously been given the nod earlier in 2019. Going ahead is essential to both parties and to the idea of accelerating the UK towards being carbon neutral. So how do you resolve a situation where a monopsonic agent wants to squeeze a monopolistic supplier? A compromise of course, but pressure to secure natonal energy supply is surely greater than any pressure on SSE to invest in something entirely at its own risk on terms which will not be economically worthwhile. New nuclear capacity programmes or interconnects across the North Sea are not obviously riding in like the US Cavalry to save the day. OFGEM really grinds my gears. Another small challenger Toto gone bust today shortly after getting approval to take on a previous failed suppliers customer base, and while still owing £4-5M of climate change levies which have been paid by consumers to Toto. But not by Toto to OFGEM. The excuse … we did not have the powers to act … is utterly pathetic, imagine those reedy whining tones of the former Commons speaker Michael Martin while excusing his dithering. The day when OFGEM is found to be expensive and not fit for purpose another step closer. The other news, that CMA will scrutinise the Ovo-SSE merger, is neither surprising nor a real concern. Prior to the previous deal collasing the CMA approved a merger with nPower, so an objection to a merger with Ovo is unlikely … Ovo is smaller and is one of the challenger suppliers favoured by OFGEM. If Ovo is credible that its business model can sustain home energy supply cheaper than the old Big 6, how can transferring 3.5 million households from an old Big 6 to a challenger be anything other than good news for the consumer? I suppose the CMA has to do something (how about cracking on with an inquiry in to rip off insurance) but hopefully with a bit of common sense will nod the deal through swiftly. Interim results on 13 Nov may not be great, we have already been warned on H1 financial performance, but outlook will surely be brighter. The steady rise in sp from 1000p in May and 1100p in July and 1200p in September should continue. We know the annual divi payment is due to be revised down to 80p, so the interim might only be 20p ex-div c. 16 Jan 2020. Enough to underpin a 1300-1350p share price as we are today. But actually a review of the potential for the business might see more broker positives and I am beginning to feel this could recover all the way to 1500p.