HSBC has downgraded its rating for energy supplier SSE plc (LON:SSE) to ‘hold’ from ‘buy’ because it is concerned over potential tariff caps after the group’s move to hike prices.
SSE has said it will raise prices for domestic customers from 1 April 2017 by 6.9%, or £73 per year, following on from price increases by other energy providers.
Analysts at HSBC, however, are concerned that “the political ‘noise’ on the issue is growing louder” which could lead to possible caps on tariffs.
In a note to clients, they noted that: “According to a statement published by the Telegraph on 17 March, Prime Minister Theresa May stated that the government is considering how to ‘step in’ to control energy prices because the market is 'manifestly not working” for consumers'”.
Cash constraint …
The analysts said: “Our major concern with recent developments is that the rating agencies will see any government intervention as an increase in the risk profile of the UK integrated electric utilities and increase the risk premium which may include higher key credit ratio requirements.
“The utilities could then face a cash constraint which might impede their ability to grow dividends.”
They have reduced their share price target for SSE to 1,620p from 1,740p.
In early morning trading, SSE shares on the FTSE 100 index were 1p lower at 1,502p.