The SSE (LSE:SSE) share price surged in the final months of 2023. Between October and December, as investor confidence returned to the financial markets, the energy development group saw its valuation climb more than 20%. However, since then, things have started to go a bit downhill, with almost half of this progress wiped out.
Following today’s (8 February) mixed bag of results, this downward trajectory may not be so easy to reverse. But is this secretly a buying opportunity for long-term investors?
Risk of disruption is rising
On the surface, SSE appears to be making good progress in executing its strategy. After all, management has just reiterated its full-year guidance, suggesting that things are going according to plan. But digging deeper into the results reveals some potentially problematic discoveries.
The last two quarters of the firm’s financial year (which ends in March) are typically the busiest. That’s because British households use more energy during the winter months, keeping the lights and heating on longer. Unfortunately, the output of its green assets didn’t meet its anticipated targets.
With the Met Office reporting 10 named storms during the quarter, production from its Renewables division was 15% behind expectations. Meanwhile, the group’s Thermal segment also had its fair share of hiccups, causing electricity generation to suffer.
Obviously, the weather is beyond management’s control. But providing that conditions improve in the next quarter, the leadership team appear confident in meeting its investor guidance. Unfortunately, with the Met Office naming another three storms in January, the risk of missing targets may be higher than management would have investors believe.
A long-term buying opportunity?
While weather-related short-term hiccups are frustrating, for long-term investors, it’s not a thesis-breaking revelation. What matters more is the progress of its previously launched massive £20.5bn investment programme.
Despite operational headwinds, progress across its various projects is moving in the right direction. Work is now underway in constructing SSE’s Eastern Green Link 2 – an electrical superhighway that will connect its Scottish energy assets to more than two million homes across the UK. At the same time, the first turbines have been installed at its new wind farms in Shetland and Yellow River.
Unfortunately, SSE’s flagship Dogger Bank A project completion has been delayed until 2025 as a result of the bad weather. As a quick reminder, Dogger Bank A is going to be the world’s largest offshore wind farm capable of powering six million homes. Nevertheless, management doesn’t expect this delay to compromise its investment.
All things considered, the long-term potential of SSE and its share price continue to look promising in my eyes. As such, the recent weakness in share price may present an attractive entry point for investors seeking exposure to the British energy sector.
