Morningstar

SSE: Shares Soar on Limited Equity Raise and Strong 2030 Guidance

We raise our fair value estimate for SSE stock.

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Key Morningstar Metrics for SSE

SSE SSE announced a GBP 2 billion equity raise—9% of the market capitalization before the announcement—to fund a massive step-up in grid investments. It set its 2030 EPS guidance above our expectations. Shares are up by nearly 12% at the time of writing.

Why it matters: This GBP 2 billion equity raise is below market expectations, with most of the step-up in investments to be funded by new debt—a testament to the group’s strong balance sheet. It removes an overhang that has weighed on shares over the last two years.

  • The firm will invest GBP 33 billion over fiscal 2026-30 or GBP 6.6 billion annually, three times as much as during 2021-25. Eighty percent of it will be dedicated to networks and only 12% to renewables versus 37% over 2021-25. The firm set its 2030 EPS guidance in a GBX 225-GBX 250 range (after the equity raise).
  • The guidance midpoint is 15% above our estimate and implies a five-year EPS CAGR of 8%. A key growth driver will be the 30% CAGR in the transmission grid’s regulated asset value. The firm also plans GBP 200 million of cost savings by 2028.

The bottom line: We raise our fair value estimate by 8% to GBX 2,430 from GBX 2,250 after raising our estimates and incorporating higher investments and the equity raise. Our new fair value estimate implies a 14.8 2026 P/E and offers 11% upside to the share price at the time of writing.

  • We reckon the equity raise will have a neutral impact as we assume it’s executed at a price close to our previous fair value estimate, given the share price rise after the announcement.
  • Our new fiscal 2030 EPS estimate of GBX 217 is below the guidance range because of our midcycle power price forecast of GBP 60/MWh and our assumption that SSE will keep half of its targeted cost savings.

Key stats: SSE extends its targeted annual dividend growth of 5%-10% from 2027-30, in line with our expectations.

  • The group guided for a GBP 14 billion increase in net debt and hybrid through 2030, with net debt/EBITDA remaining below 4.5.

Editor's Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.

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