Analysts at Berenberg raised their target price on utilities firm SSE from 1,300.0p to 1,690.0p on Thursday, citing more bullish long-term expectations for the group’s renewables business.
Berenberg stated SSE was “well placed” to make “a significant contribution” to the energy transition through investment in electricity transmission and distribution and renewables.
However, its analysts noted that press speculation about calls for a potential break-up of the group had driven the stock higher and upside from here, whether the group was split or remains whole, looked limited.
The German bank, which reiterated its ‘hold’ rating on the stock, said a break-up would not guarantee value creation, despite arguments that a separation of networks and renewables could lead to more valuation transparency for both businesses.
“It is not clear how SSE’s smaller other businesses – thermal generation, trading, business energy supply, and enterprise – would fit in a renewables/networks separation,” said Berenberg.
“For example, the combination of renewables and networks arguably helps SSE stick to its dividend growth commitment this year, despite the first-half shortfall in renewables output and hedging costs. On its own, the networks business would be capable of supporting an RPI-linked dividend policy. However, a standalone renewables business would likely prioritise capital expenditure. The sum of separate dividend policies would not necessarily equal the group’s famed existing dividend commitment.”
