UBS has upgraded SSE PLC (LSE:SSE) to a "buy" rating, raising its 12-month price target to 1,970p from 1,935p.
The investment bank attributes its more optimistic outlook to the group's robust growth in its electricity transmission business and the potential upside from its renewable energy projects, including the pivotal Berwick Bank offshore wind farm.
SSE, one of the UK’s leading energy companies, is expected to benefit significantly from structural growth in its transmission segment.
UBS forecasts a compound annual growth rate of 12% in the regulated asset base of its transmission division through 2030, driven by the expansion of the UK’s clean energy infrastructure.
Transmission now accounts for 27% of SSE’s enterprise value, and UBS believes it will remain a core growth engine for the group.
The upgrade also reflects rising investor confidence in SSE’s renewable energy pipeline, including the Berwick Bank project, a 4.1GW offshore wind farm awaiting planning approval.
UBS estimates the project could add between 200p and 300p per share in value once operational. As the UK government pushes toward its 2030 target of 50GW of offshore wind capacity, SSE’s renewable portfolio is well-placed to capitalise on these ambitions.
It also highlighted the resilience of SSE’s thermal power assets, which, despite reaching their lowest profitability in years, are expected to recover as capacity payments and market spreads improve. These assets, which include gas-fired power stations, provide a flexible backup to the growing renewable energy supply.
While the Dogger Bank offshore wind project has faced delays due to turbine issues, UBS views the financial impact as limited. The project’s higher-than-expected revenues, driven by inflation-linked contracts, are helping to offset cost overruns.
Risks include potential cost inflation and regulatory hurdles that could impact project timelines. However, UBS remains confident in SSE’s ability to navigate these challenges, supported by its strong balance sheet and diversified portfolio.
The stock was little changed on the day at 1,577.5p.