Over the past five years, integrated energy company SSE (LSE: SSE) has been in transition. But it’s emerged with a clear ambition to serve the country’s energy needs for today and the future. And SSE shares present an opportunity now for long-term investors.
The company is focused on regulated electricity networks and renewable energy with flexible generation. And it’s aiming for a balanced business model capable of “strong” performance, despite volatile market conditions. We’ve had plenty of those lately.
Net zero ambitions
The directors reckon the enterprise offers “significant” inflation protection for shareholders. And that’s because of index-linked revenues and “limited” index-linked debt. We’ve seen those things in action recently.
Indeed, energy prices have shot higher, lifting revenue. And the cost of interest on debt moved up too. So it’s good that SSE’s exposure to rising payable interest has been under control.
The company’s strategy is underpinned by its net zero acceleration programme announced in November 2021. The directors reckon the programme represents the “optimal pathway“ to consolidate the company’s position as the UK’s “clean energy champion”.
The goal is for the business to deliver more than 25% of the UK’s 40 Gigawatt (GW) offshore wind target for 2030. And over 20% of the country’s electricity networks investment. But SSE also plans to export more of its renewables capabilities overseas. So the potential for growth is a big part of the case for investing in the shares now.
Meanwhile, the company has been busy selling non-core operations. And it’s been buying into projects that support its ambitions, such as wind farms. But “partnering” with other companies forms a part of the plans for financing its ambitions as well. And we’ve also seen it selling minority stakes in projects to raise cash for further investment.
Rebased shareholder dividends
However, these aren’t the only ways the company has been raising funds. It also rebased the shareholder dividend lower for the trading year March 2024. The idea is to “support the group’s significant investment and growth plans”. But the news was probably not welcomed by many existing shareholders if they were there for the dividend income.
Nevertheless, although the road ahead is full of uncertainties for SSE, a tilt towards enhanced growth could deliver satisfactory long-term total returns for shareholders. Although nothing is guaranteed, as with all businesses.
Meanwhile, it’s interesting to examine how much a £1,000 investment in SSE shares five years ago would be worth now. After all, the period has seen a lot of change for the business. And back then, we could have picked up a few shares at around 1,231p each. So today’s price near 1,784p represents an increase of 553p per share.
But that’s not all. Over the period, dividends totalled 439.5p per share. And adding that to the gain from the share price works out at 992.5p per share. So the gain over the period is around 80%. And that means a £1,000 investment five years ago would now be worth about £1,800.
For me, that return would have been satisfactory. And investors may want to research the company’s forward prospects now.
