JP Morgan has provided an in-depth analysis of SSE PLC (LSE:SSE), the UK power generator, highlighting the company's potential for growth amidst a challenging market environment.
Despite the downturn in wholesale prices and spark spreads (a method to determine how profitable natural gas-fired electric generators are), SSE's medium-term financial targets are still within reach, with an anticipated 23% upside to its current share price, JPM added.
The report specifically examines SSE’s renewable and thermal power production segments, assessing the key factors that influence their profitability.
The American investment bank has revised its earnings expectations for the renewables sector downward due to decreased power prices, now predicting an 18% earnings before interest and taxes (EBIT) compound annual growth rate (CAGR) over the five years to the financial year 2027 (FY27), slightly below SSE's own forecast of 20%.
On the thermal power front, JP Morgan believes SSE is on track to meet its guidance of £500 million EBIT per annum on average in the four years leading up to FY27. However, the earnings are expected to be more concentrated towards the latter part of this period than initially projected.
While JP Morgan’s EPS estimates for FY25 and FY26 fall below the consensus, this discrepancy is attributed to more recent market evaluations and the inclusion of negative one-offs in network operations.
Nonetheless, its FY27 EPS forecast of 175p is 3% higher than the Bloomberg median consensus and 9% above the buy-side consensus of 160p, based on investor feedback.
SSE remains a top pick for JP Morgan, which has an overweight rating on the shares and a 2,050p price target.
In afternoon trading, the stock was changing hands for 1,675.5p.