SSE PLC's (LSE:SSE) shortfall in renewable energy production was mitigated by a strong performance in its flexible thermal division, highlighting the generator’s well-balanced model, analysts say.
Following an update from SSE warning of lower earnings at the half-year stage, broker Peel Hunt remains confident on the generator.
Meanwhile, UBS analysts said they expect a "small positive" reaction in the shares, as the update "offers some de-risking of full-year results, shows relatively low sensitivity to renewable fluctuations (an ongoing merit of the integrated model), and gives positive messages on strategy, balance sheet and financing".
Though renewable generation lagged due to poor weather conditions, SSE’s continued use of gas-powered stations likely alleviated the hit, Peel Hunt analysts said in a note.
“[This] reflects SSE’s strong, balanced business model,” the bank said, for instance, “increased thermal output compensating for a reduced renewables performance”.
Backing the FTSE 100-listed energy firm, Peel Hunt also pointed to pipeline projects as likely to drive progress.
These include SSE’s four new onshore wind projects which received 15-year agreements to sell power at £52.29/MWh as part of the government’s latest contracts for difference round.
Recent commissioning of the Seagreen offshore project this year is set to be followed by the first power from Dogger Bank - the largest wind farm in the world - in the coming days, while work continues on the Viking onshore site.
Shortlisting of the Acorn and Viking projects in Scotland and northeast England to become carbon capture and storage clusters by the government earlier this year also bodes well for SSE, the bank said.
Given SSE is expecting a stronger second-half performance, with long-term prospects looking strong, Peel Hunt reiterated backing for the firm, setting a share price target of 2,060p - up 35.5% on Tuesday’s close.
UBS kept its price target unchanged at 2,250p along with its 'buy' stance.