Monday, 23 May 2011

Scottish & Southern Energy Preliminary Results

Scottish & Southern Energy @ 1327p, - 14 (-1.04%)

Down today (with the markets) but, Scottish and Southern (SSE), another UK utility from the Virtual Portfolio, also revealed preliminary results last week.

- Revenues of £28.334bn (+31%)
- Pre-tax profits of £1.3bn (+1.6%)
- Cashflow per share of 183.5p in excess of earnings per share of 162.2p
- Cash at bank of £476.9m (2010: £261.7m)
- Full year dividend of 75p per share (+7.1%)
- Dividend cover of 1.5 times
- Stated intent to increase this years dividend by RP+2% and RPI plus going forward.

- Average net debt of £5.891bn (2010: £5.292bn)
- Net gearing of 98% (2010: 185%)
- Net interest payments of £256m (2010: £265m)
- Interest cover of 7.3 times

"Its corporate credit ratings are now:
'A-', with a 'stable' outlook (Standard & Poors; reaffirmed in June 2010); and
'A3' with a 'stable' outlook (Moody's; reaffirmed in July 2010)."

Nice and clear corporate objectives:
"SSE's key financial objective is to deliver above-inflation increases in the dividend every year, and this has again been achieved. SSE is one of just six FTSE 100 companies to have delivered real dividend growth every year since 1999, when the company paid its first dividend," trumpeted Lord Smith of Kelvin, the chairman of SSE. 

The results do seem to celebrate the company's record on dividend returns for shareholders (this being the 12th successive year of above inflation increases) but balances it with efficiency, the environment and customer service targets.

Slightly concerning is the drop in powers station availability on:
- Gas stations - 88% from 94%
- Coal powered stations - 84% from 92%

and, lost minutes to customers from:
- Scottish Hydro 78 minutes from 74 minutes
however, Southern Electric improved slightly to 64 minutes from 65 minutes

The company also announced two acquisitions related to the generation of wind power: the first a manufacturer of towers; and the second a wind farm. 
Wind power still seems to be a questionable technology (for large scale generation) to me based upon its not so green credentials (rare earth metals mined in China for Neodymium magnets).
Is future growth really going to come from wind power?

Lots to like about the company with its clear objectives and commitment to shareholders. Finances seem to be going in the right direction: gearing down; interest cover up; cash up; dividends up.

Some concerns about future growth then (will it just come from volumes?); and wind power which now contributes 1,900 megawatts to SSE's 11,000 megawatt capacity.

SSE has often been touted as a target, as most UK utilities are, due mainly to the UK's inability to "protect" its key industries. As it stands most of the UK's utilities have already been taken over by foreign companies (I wonder what that says about UK margins as well as the lack of protectionism).
Is there a takeover premium in the SSE share price? At a forecast price to earnings ratio of 11.6 times there doesn't seem to be.

There isn't a published ex-dividend date as yet but, taking last year financial calender as an estimate, SSE's shares went ex-dividend on the 28th July (payable on the 24th September).

The shares are forecast to yield 5.8% for the current year, climbing to 6.1% in the year ending 2013. So, from a dividend point of view I am still happy to hold. 
And, at the current price of 1327p, the shares have so far produced a 15.3% capital gain and a dividend return of 8% - making a total gain of 23.3% for the portfolio which, for 16 months, I am quite pleased with. SSE trumpets its dividend growth
- Scottish & Southern Profit Rises on Regulated Network Sales

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