Wednesday 25 April 2018

Largely unknown SSE looks a good bet for dividend chasers

I LOVE opinion polls. I sit around pondering the height of wisdom and the depth of ignorance that are often revealed in the sample of public opinion.

This week, I was thinking, for instance, that if an opinion pollster were to mention the name 'SSE' to the average citizen, what would the reaction be?

It is probable that 95pc would ask that the question be repeated. Some of the respondents, I suppose, would think it was a query about a particularly murderous division of Hitler's Nazi party.

Few, if any, would realise that SSE is the name of the second-largest power company in the UK, the third-biggest energy company in Ireland, the largest provider of public lighting (UK and Ireland), the fourth-largest telecom company (UK) and one of the largest mechanical and electrical contractors in the UK.

The initials stand for Scottish and Southern Energy and it is a pretty hefty Irish utility, even if the initials are largely unknown to the Irish public.

If, of course, the aforementioned pollster said the company's Irish subsidiary was called Airtricity, the reply would immediately be: "Oh, you should have said that."

Energy utilities have become a bit of a preoccupation with me over the past few weeks as I've seen the astonishing profits that are being thrown up by the international oil and energy sector, which may or may not be reflected in the new 'highs' that are being notched up by the stock markets on both sides of the Atlantic.

Because the key indices, like the FTSE and the Dow Jones, are so pricey, it demands careful share picking if the investor is looking for capital appreciation. But as I have stressed in the past, there is also wisdom in going for shares that offer reliable income. Power utilities are a good bet for dividend chasers. One such company is SSE.

Formed in 1998 and based in Perth, Scotland, it is ranked No 23 in the FTSE 100 list with revenues of £32bn (€36.7bn), employs 20,000 people and has 10 million electricity and gas customers.

It is valued at £14bn and has a present share price of £14.50 (see graph).

Its Irish activities date back about five years, when it bought Airtricity's 24 wind farms in the UK and Ireland. Today, it is a significant company in the Irish energy market. It claims a customer base on the island of Ireland of 810,000, (130,000 in Northern Ireland).

A further breakdown of its customers shows 230,000 gas and 580,000 electricity customers.

In June 2012, it embedded itself further into the Irish energy market by buying Irish electricity generation assets from the Spanish energy company Endesa for €270m. As a result, SSE has 12pc of the installed electricity capacity in Ireland. The acquisition included plants in Wexford, Offaly and Mayo. SSE is looking for planning permission to develop further at Tarbert, Co Kerry.

It is hard to quarrel with the SSE claim that it is unique among listed companies in owning and operating a balanced group of regulated (40pc of profits) and non-regulated (60pc of profits) energy businesses. It claims that this means less risk to short-term trends.

I spent a good part of my life getting to know and understand the power business, especially the distribution of gas. Because of this, I have a good deal of respect for what SSE has achieved.

It is planning a minimum capital expenditure of £1.5bn for each year up to 2015. Not too many utilities can make promises like that.

SSE has also been acquiring natural gas assets and production. It acquired 50pc of BP's North Sea Gas Field for £1.78m. This was part of BP's divestment plan to pay for the Gulf of Mexico oil spill. It also acquired oil and gas assets from Hess and Parenco for £330m.

I suspect that SSE, its rival Centrica, and a few others are interested in any development of Bord Gais. SSE's incoming CEO has expressed interest in the Irish state company recently in the papers.

Because of its contact with the public in general, companies like SSE can have regulatory problems. Recently, the company was fined £1.25m for misleading doorstep practices.

But for our purposes, it pays decent divvies and that I like.

Dr John Lynch is a former chairman of CIE. Nothing published in this section should be taken as a recommendation, either implicit or explicit, to buy or sell any of the shares mentioned

Irish Independent

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