The share price chart of SSE (LSE: SSE) (NASDAQOTH: SSEZY.US) over the last year does not make for happy viewing.
Indeed, shares have been hit relatively hard by the political risk that has surrounded (and continues to surround) the electricity supply sector.
One aspect of this has been the continued criticism about energy suppliers from the public, media and, perhaps more importantly, politicians. SSE’s share price, for instance, did not react favourably to comments made by Leader of the Labour party, Ed Miliband, who said that if his party was to win the General Election in 2015, he would freeze electricity prices for 20 months while he created a new regulator in place of the incumbent, Ofgem.
So, investors in SSE must accept that there will continue to be substantial political risk in place up until the election — and possibly even more after it.
However, that uncertainty appears to be priced in — shares have fallen by just under 20% since their high in May 2013. Indeed, with a price to earnings (P/E) ratio of just 11.5, shares could offer good value for longer term investors who can stomach the potential for above-average volatility over the next few years.
Furthermore, SSE remains one of the best defensive stocks in the index, since its beta is very low at just 0.6. This means that, were the wider market to fall, SSE should (in theory) fall by 0.6% for every 1% fall in the wider index. This property could prove to be highly beneficial, since the stock market has rerated heavily over the last year in anticipation of improved profitability and better bottom-line growth. Should it disappoint on this front, ratings in the wider market could fall, leaving lower beta stocks (such as SSE) a logical place to be.
Of course, a low beta may be good news if share prices fall but is not such good news if they rise. For example, SSE should (in theory) go up by 0.6% for every 1% gain in the wider market, so in a bull market it should underperform.
However, SSE remains a company that offers good value (via a relatively low P/E) and attractive defensive properties. Shares may be volatile in future years as political risk looks set to remain high, however SSE could still be a stock to help you retire early, since much of this risk could already be priced in.
