SSE PLC (LSE:SSE) is among the most attractive UK utilities thanks to high prices and ensured returns on renewables, according to JP Morgan analysts.
In fact, utilities may well outperform the wider FTSE-350 index as a whole heading into the end of the year, analysts said, as their “defensive qualities” show against macroeconomic uncertainty.
Electricity stocks themselves look more favourable than counterparts in the UK’s water sector meanwhile, the bank noted, given regulatory uncertainty in the latter.
“We believe that the [electricity] sector should trade at more of a premium given the higher power price environment and higher growth prospects in electricity networks,” analysts said.
Asset growth should help underpin strong earnings at SSE PLC in particular, prompting analysts to dub the generator a “top pick” thanks to its exposure to renewables.
National Grid PLC (LSE:NG.), Centrica PLC (LSE:CNA) and Drax Group (LSE:DRX) were also backed by the bank, though higher fuel costs could impact earnings at the latter, JPM warned.
“We continue to favour power generation, supported by higher power prices for many years to come,” it commented.
“While power prices are lower than the highs of last year, we expect them to remain elevated versus pre-2021 averages, and do not yet see this as reflected in valuations.”