Ahead of its year-end update next week, SSE PLC (LSE:SSE) has been backed to rebound by JP Morgan, which argued that the renewable energy company’s 17% share price drop over the past six months is overdone and unjustified.
Other analysts said the slide in the shares may be more to do with rising bond yields than the fundamental prospects of the business, based on its first-half results and third-quarter update.
JP Morgan reiterated its 'overweight' rating and set a price target of 2,075p, implying 34% upside from current levels for the utility, whose shares have shares have slipped to two-and-a-half-year lows.
JPM analyst Pavan Mahbubani said investor concerns around SSE’s post-2027 funding capacity and long-term earnings impact from UK power market reforms have weighed heavily on the stock – but may be overstated.
“While we acknowledge the company’s balance sheet headroom is limited, it has several levers to manage this, including disposals,” Mahbubani noted. As for electricity market reforms, any real impact is unlikely before 2030, the bank added.
The shares currently trade at just eight times forecast 2027 earnings – a valuation JP Morgan sees as attractive, especially when compared with peers like National Grid, which is down just 4% over the same six-month period.
Several near-term catalysts could help SSE re-rate, including regulatory updates on its Electricity Networks business in June and December, and further clarity on energy market reforms expected by mid-2025.
While funding and policy uncertainty remain a drag on sentiment, JPM sees the risk/reward skewed clearly to the upside.