Right now I’m looking at some of the most popular companies in the FTSE 100 and wider market to try and establish if there is still time for investors to buy in.
Today I’m looking at SSE PLC (LSE: SSE) to ascertain if its share price has the potential to push higher.
Current market sentiment
The best place to start assessing whether or not SSE’s share price has the potential to push higher, is to take a look at the market’s current opinion towards the company.
Unfortunately, it would appear that many investors are unsure about SSE’s future prospects. Indeed, ever since Ofgem announced that the Competition and Markets Authority (CMA) was investigating the UK energy market, investors have shied away from the energy sector in general.
However, last month SSE’s management sought to calm investor nerves by announcing a number of changes to the company designed to cut costs, reduce prices for consumers and secure the company’s dividend payout.
In particular, these changes include a freeze on household energy prices in Britain until at least January 2016, a separation of the group’s retail and wholesale businesses, a programme of non-core asset disposals that will reduce debt by around £1bn and other operational efficiencies designed to produce annual savings of £100m by 2016.
Further, the company is maintaining a policy of dividend increases at least in line with RPI inflation until 2016.
Upcoming catalysts
Nevertheless, despite managements attempts to reassure investors, SSE’s shares still trade more than 10% below the all-time high they reached last year.
What’s more, SSE’s future remains in the hands of the government and the CMA. As a result, the general election next year, along with the results of the CMA enquiry, expected within two years, are likely to be SSE’s two main catalysts going forward.
Valuation
However, even though SSE is in the midst of a political storm, the company still trades at a relatively average valuation. Specifically, SSE trades at a forward P/E of 12.7, slightly higher than the company’s ten year average P/E of 12.1.
That being said, considering the risks overhanging SSE, I feel that this valuation could be a bit rich for the company.
Foolish summary
So overall, considering SSE’s relatively high valuation I feel that the company’s shares are overvalued at current levels.
