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SSE - the FTSE-100's most boring company does something of interest

By Chris Bailey | Wednesday 8 November 2017


Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


The most boring company in the FTSE-100 by far is in my opinion SSE plc (SSE, Scottish & Southern Energy). Admittedly utility companies are not meant to be sexy but SSE with its lack of growth and grinding up dividend payment (which encompasses pretty much all of its free cash flow) is the ultimate tortoise. Don't worry I know the hare and tortoise fable and my own investment style is hardly rabid but shoot me now if I make this one a top ten portfolio position at any time before the age of 85. However...
 
Fair dues to the SSE management as they have actually announced something interesting today with the proposed demerger of the household energy and services business into a joint venture with the equivalent business of peer innogy (which is owned by the German utility behemoth RWE). Why is this interesting? Mainly because it is perfect riposte to the government's bonkers electricity/gas price cap plan which I talked about a month ago HERE (smell that lower competition and probably higher prices as utility investment spend crumbles even if the price cap might now be postponed to 2019).
 
Of course the government could block these efforts or force major divestments to limit market power (preliminary estimates suggest that the combined entity will have a market share in excess of that currently enjoyed by Centrica (CNA)), but I like the style and the implied gesticulation to the government by the SSE board. Kudos.
 
Inevitably the interim statement from SSE, also released today, was downright dull. Dividend munchers will no doubt highlight the 3.6% rise in the interim dividend but (comedy) 'adjusted' operating profit and earnings per share down 8% tell their own story. A leopard cannot change its spots, right? I even saw that after an initial share price bounce, the stock is only modestly up on the day as I write. Plus ca chance.
 
Today the aforementioned Centrica with a newish sensible management team and ongoing efforts to further develop its services and international operations has far more interesting total return scope investment given the bashing the government's cack-handed policy has induced for its shares. I would still be a buyer of that out-of-favour name at prevailing.

Chris Bailey is the editor of Financial Orbit


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