This morning, SSE‘s (LSE:SSE) full-year results came out. The SSE share price is up 4.5% so far today, making it the best-performing FTSE 100 stock. However, yesterday the stock plummeted almost 8% on windfall tax rumours. So with the share exhibiting high volatility in the short term, it does raise two questions. Firstly, what’s going on with the stock at the moment? Secondly, where could the share price go from here?
Results provide a spark
To focus on what’s going on right now, the main event is certainly the full-year results. Analysts have been offering their opinions over the past few weeks as to what they expected the results to look like. I personally thought that they’d be strong. Not only did trading updates suggest better performance than last year, but sentiment around renewable energy was also positive.
In the event, the firm reported a 15% increase in operating profit versus last year. This filtered down to an adjusted profit before tax of £1.16bn, an increase of 23%. What also impressed me was that the business is forecasting growth in earnings per share of 7%-10% for the years through to 2025/26.
This certainly has provided a boost for the SSE share price. Investors will be readjusting their expectations for higher earnings going forward, hence the move higher.
Other issues causing headwinds
Despite the positive earnings today, the SSE share price has been troubled recently. As mentioned, it lost a lot of ground yesterday, on concerns that the Government might bring in a windfall tax on utility companies like SSE, as well as on oil and gas firms. Even though morally I think this would be the right thing to do, the stock market focuses solely on the impact this would have on the business. Any surprise tax simply removes cash from the company, which is a negative.
Even though the SSE share price took a hit from these reports, I’m not overly concerned about it. The tax will be on profits, meaning that although it will reduce any profit, it won’t push the firm into making a loss.
I’m not concerned about the financials behind the tax, but I do note that it could discourage further investment for the business going forward. SSE is committed to a whopping £12.5bn of strategic investment through to 2026. If management is worried that higher taxes in general could be coming, leadership might be more conservative with their plans. This in turn could hamper the long-term performance of the SSE share price, should lower investment lead to lower earning potential.
More upside for the SSE share price
SSE shares have certainly been volatile in the short term, but for valid reasons. The share price is up 20% over the past year and recently hit levels not seen for a decade. However, the business is making a large push with investment in clean energy. So I think it’s a very different business from even just a few years ago. With earnings continuing to grow and a buoyant outlook, I feel the SSE share price could continue to move higher. I’m thinking about buying the shares now.
