Should I Buy SSE Plc?

Harvey Jones asks whether SSE plc (LON: SSE) is an electric investment.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I’m shopping for shares right now, should I pop utility giant SSE (LSE: SSE) into my basket?

Our friend electric

Last time I looked closely at energy company SSE, in October, I described it as a “dull, safe, plodding ruminant redeemed only by its tasty yield”, more of a FTSE sheep than a wolf. That was a recommendation, by the way. Trading at 12.3 times earnings and yielding 5.7%, I suggested it was a good way to underpin your portfolio’s animal spirits. Would I buy it today?

In terms of share price, SSE is definitely a plodder. It has risen 11% over the past 12 months, trailing the FTSE 100 at 15%. It is up 35% over three years, against 28% for the index, yet trails over five years. This is more likely to reassure investors than scare them away, because with some stocks, it is nice to know exactly what you are getting, which in this case is income. SSE currently yields 5.3%, against an average 3.55% for the FTSE 100. It is on a forecast yield of 5.6%, more than 11 times base rate, which if new Bank of England boss Mark Carney has any say, won’t be rising any time soon.

Power play

Yet utility companies aren’t as safe as they seem. This is a heavily regulated industry, and the penalties can be severe. In April, Ofgem slapped a record £10.5m penalty on SSE for “prolonged and extensive” mis-selling of gas and electricity. Utility companies are also under political pressure, thanks to rising energy bills, although that didn’t stop SSE from raising its prices 9% in October, and warning of further hikes to come.

SSE’s adjusted profits rose a steady 5.6% to £1.41bn in the year to 31 March. More cold winters will help. Management hiked the full-year dividend 5.1% to 84.2p per share, continuing its unbroken record of annual increases, and is targeting annual increases above RPI inflation in 2013/14 and beyond. SSE is on a forecast earnings per share (EPS) of £1.17 in the year to March 2014, which means it trades at 13.6 times earnings, slightly above the FTSE 100 average of 12.9 times. EPS growth should be flat this year, rising to 6% in the year to March 2015, when the yield is a forecast 5.8%.

UBS says yes

SSE has its fans. Investment bank UBS has recently popped it onto its “most preferred pan-European utilities” list, praising its regulated networks, renewables exposure, attractive dividend policy, structural earnings growth and risk-adjusted valuation, and rating it a ‘buy’ with a target price of £16.30. Given current low interest rates, how could it be anything else?

Only six FTSE 100 companies yield more than SSE, and Motley Fool’s favourite stock pick is one of them. Our analysts have singled out this FTSE 100 favourite because it offers a sky-high yield and great growth prospects. To find out what it is, download our free guide “Power Up Your Portfolio”. It won’t be available much longer, so click here now.

> Harvey doesn’t own any stock mentioned in this article

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Investing Articles

£50k in savings? Here’s how I’d aim for a second income worth £60,000 a year

Many of us invest for a second income and the prospect of an easier life. Dr James Fox explains how…

Read more »

Investing Articles

The BT share price has surged! Did I leave it too late to buy?

The BT share price has surged since I last covered it. So what's happened and am I too late to…

Read more »

artificial intelligence investing algorithms
Investing Articles

Should I buy Tesla stock for its ‘unused computing power’ and not the EVs?

At 71 times forward earnings, Tesla stock's valued like a technology or AI company. So why is this, and should…

Read more »

Man smiling and working on laptop
Investing Articles

These FTSE 100 shares could rise 15% to 36% in the next year!

Is the market underestimating these top FTSE 100 stocks? Royston Wild explains why analysts expect these two blue-chip shares to…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

Should I be watching the Greatland Gold (LSE: GGP) share price?

Recent rallies in valuable metal prices has boosted the Greatland Gold share price, but is there still an opportunity for…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

The abrdn share price is down 23% in the last year, should I buy?

Asset management firms have had a rough time lately, but with the abrdn share price down heavily, is now the…

Read more »

Hand of a mature man opening a safety deposit box.
Investing Articles

If I’d invested £5k in red hot BAE Systems shares 5 years ago here’s what I’d have today

BAE Systems shares have smashed the FTSE 100 for years and Harvey Jones is keen to buy more as they…

Read more »

Investing Articles

How I’d aim to earn £16,100 in passive income a year by investing £20k in a Stocks and Shares ISA

Harvey Jones is building a portfolio of high-yielding FTSE 100 dividend stocks that should give him a high and rising…

Read more »