SSE offloads retail arm and Wetherspoons profit disappoints

Friday, September 13, 2019 - 09:29

“The pound looked lively heading into the weekend with a 0.67% gain against the US dollar to $1.2415. London-listed companies with lots of overseas earnings were therefore marked down including Diageo, Experian, Unilever and Reckitt Benckiser. The FTSE 100 traded 0.1% lower at 7,335.

"However, UK domestic stocks were in demand once more, with Lloyds, SSE, Taylor Wimpey, ITV and Royal Bank of Scotland among the biggest risers on the FTSE 100,” says Russ Mould, Investment Director at AJ Bell.

SSE

“Energy provider SSE has finally done a deal to get rid of its household energy supply business. This will leave SSE focused on renewables and energy networks.

“Its retail customers will hope that new owner OVO offers a good level of customer service as historically SSE has scored well on customer satisfaction relative to the other large energy suppliers, according to a GfK survey in 2018.

“SSE’s shareholders will also have their fingers crossed that a tighter business focus will result in better returns for their investment as the energy company’s share price has been very volatile in recent years.

“Investors were dealt another blow earlier this year with a cut to the dividend, with inflation-linked income growth having previously been a core reason why so many people owned the shares in the first place.

“SSE’s annual dividend growth streak had stretched all the way back to 1992 so this year’s decision to slash the pay-out was particularly brutal for its investors. However, changes to the group structure and tough trading conditions meant that it was the right thing to do.

“In May chief executive Alistair Phillips-Davies forecast an improvement in underlying profits but cautioned that progress would be restrained by the timing of profits in Electricity Networks and effect of hedging at the Renewables operation, which would limit the price received for the energy generated at levels below prevailing market rates.

“This followed last year’s profit setback when the hot, calm summer hit SSE’s wind business and forced the firm to buy power in the open market to compensate for the renewables shortfall. That drove the Energy Management unit into loss.

“SSE has now guided that the dividend for the current financial year won’t be affected by the OVO deal. This will be a relief to shareholders, so too news that it is still expecting to increase the dividend by the rate of RPI inflation for the subsequent three years.”

JD Wetherspoon

“Offering his latest strident views on Brexit could be seen as an attempt to distract from disappointing company results by the founder and chairman of Wetherspoons, Tim Martin.

“However regular followers of the company will know by now that an update from the pub chain is always an excuse for Martin to make his views on Brexit known.

“Profit came in below forecasts for the 12 months to 28 July. As is often the case with the company, sales growth was not the issue. This remains impressive yet margins were still falling.

“Higher than usual repair and maintenance costs took their toll but the company is also affected by rising staff costs.

“In fairness analysts have always been more concerned about margin performance than the company itself which has always prioritised rising sales.”

These articles are for information purposes only and are not a personal recommendation or advice.


The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.