SSE - Trading Statement

[Dod101]

ITH

See my post of this morning at 9.13 am. I am not 'bleating', simply making a comment on the weak position of SSE.

Dod

[IanTHughes]

I would not buy [SSE] today …... Trading conditions are not great, its finances appear stretched and then there is Corbyn.

I will not buy SSE at the moment because there are better yields available and also I have decided to await the "restructuring" planned for later this year. But what is it within either the recent Trading Update, the latest Annual or Interim Report, or indeed any other piece of information that you may have read, that leads you to reach the conclusions that: “Trading conditions are not great”. “Its finances appear stretched”. “The danger of Corbyn”?

I only ask because I want to understand what it is you see that I do not?

I will probably sell my remaining holding before long if the price recovers a bit.

Why?


Ian

Moderator Message:
There is pointed questioning and pointed questioning. This post veers a little too much towards the aggressive end of the spectrum, and has been flagged as such. We are not here to score points, but to learn from each other as investors. -- MDW1954

[monabri]

The finances are stretched in terms of continuing to pay a dividend at its current level.

Debt has been increasing and earnings growth over the next 3 years is forecast as being "flat".

The free cash flow does not support the dividend ... and that was before factors out of SSE's control (weather) reduced profits significantly as announced yesterday.

So, I can't see where is the dividend coming from (further increases in debt - added to debt which has been increasing over the last 5 years), reductions in capital & infrastructure expenditure ?

I sense a director hanging on to his job as long as possible, not wishing to announce a divi cut (with a "compensation" of £2.7m per year I can see why).

[Dod101]

ITH

I have no wish to ignore you but nor will I be drawn into a long pointless discussion. The Corbyn threat is well known. If you are not aware of this, well you ought to. Their finances have been stretched for some time and if you look at the debt profile you will see that they have often been finding the cash for dividends from borrowings of one sort or another. As for trading conditions the statement by the Company explains that and the price cap will have an impact as well. The price has been dropping then drifting for the last several years and that is telling us something and my own thoughts just confirm that. Profit warnings are not usually isolated to one statement and although the record of SSE over many years has been good, and the management sound, there are just too many negatives. I think their best days are behind them.

I sold my remaining shares in British Land yesterday and may well sell my remaining shares in SSE soon for the reasons mentioned above. I sold about 2/3rds of them at just under £13 in January and should have sold them all at that time.

monabri has just beaten me to it but I will let my post stand.

Dod

[monabri]

I will not buy SSE at the moment because there are better yields available and also I have decided to await the "restructuring" planned for later this year.

Ian

The current effective yield of SSE is over 8.5% at the moment... which is rather high. Even higher yields are available at Evraz, Persimmon and Centrica but perhaps you are looking "elsewhere" beyond the FTSE100 ? If I might ask, where do you see such opportunities?

Moderator Message:
The tone of this conversation has become a little too personal. If you're thinking of replying to it, please see the moderator message a couple of posts above. --MDW1954

[absolutezero]

Continuing to hold and happy to live with the noise until SSE becomes McNationalGrid. I'll probably dump SENpower when that arrives, unless it announces an unambiguous divi policy from the outset. I'm not topping up any utes anyway until Corbyn&McDonnell are dumped after the next general election or labour leadership contest, which ever happens first.

You assume they won't be winning....

[absolutezero]

Did the clearout earlier on this year. February March ish.

Decided to get rid of anything that was occupying my thoughts too much or keeping me awake, be that because of the threat of nationalisation (keeping me awake), too much duplication (did I need 5 mining companies?) or any companies that I decided were 'crappy' on other grounds (debt, dying business model).

The companies I now hold are typically ones that ought to be around in 50 years' time.
In other words,
* they provide a service where the Internet isn't going to each their lunch (like I expect will happen with Pearson - digital text books- They're never going to be copied and shared about are they?),
* they have a wide moat (be that brands like Unilever or huge set up costs like Shell).
* high ROCE
* decent dividend history
* unlikely to be nationalised should you-know-who get elected - and if they do decide to nationalise the likes of Greene King or Astra Zeneca then we have worse things to worry about.

Absolute Zero,
I would love to see your portfolio now, and a list of what you cleared out, and for each of these, why.
THe Trump trade war escalation is making me feel that it is time to batten down the hatches for some rough weather.
Hope this wouldn't involve too much. Probably best on a new thread, though, as this is straying from the subject matter
tuk020

I'll do this later on. Shouldn't be too horrendous. I'm a spreadsheet freak.

[monabri]

Apologies - I wasn't trying to be "pointy" ... I was more curious as to where ITH sees "opportunities" (and to share his views!!).

[Gengulphus]

I suspect that reality will dawn on the Directors of SSE rather sooner than we think and the dividend will be rebased well before any spin off of the retail arm.

An interesting suspicion, given that SSE expect that spin off to complete in Q1 2019. The only scheduled dividend announcement before then is the interim results announcement expected on November 14th. So either you suspect they're going to "rebase" the dividend in that announcement, or that they're going to make an unexpected dividend announcement at some point, or that they're not going to be able to keep to one or other of their expected dates... Or of course, possibly you've failed to think about the implications of your suspicion?

FWIW, I won't be particularly surprised if they do "rebase" the dividend, and I also won't be particularly surprised if they don't - and I've seen too many people get such predictions (even ones they've made very confidently) wrong in both directions to be at all impressed by them!

Gengulphus

[IanTHughes]

The current effective yield of SSE is over 8.5% at the moment... which is rather high. Even higher yields are available at Evraz, Persimmon and Centrica but perhaps you are looking "elsewhere" beyond the FTSE100 ? If I might ask, where do you see such opportunities?

Apologies - I wasn't trying to be "pointy" ... I was more curious as to where ITH sees "opportunities" (and to share his views!!).

No need to apologise, not to me at least, a perfectly fair question in my view.

My last purchase, 3 days ago as it happens, was a relatively small purchase of Persimmon PLC (PSN), a new holding for my HYP. It now constitutes 0.62% of my HYP by value. My next purchase will not take place until 10 October 2018 so things may change, but my current intention is another purchase of PSN, topping it up to about 2.38% of my HYP by value, all other things remaining equal. In fact, I also have a small holding of Crest Nicholson Holdings PLC (CRST), 1.28% of my HYP by value, which has a similar yield to PSN. So the October Top-Up may be shared between the two, we shall see.

Another I am interested in, enough to have purchased 1.00% of my HYP by value back in August, is Marston’s PLC (MARS). I would like at some point to add to that, maybe November or December? Once again, we shall see.

With regard to the others that you mention:

Evraz PLC (EVR): I already hold BHP Billiton PLC (BLT) which, when added to my two largest holdings in BP PLC (BP) and Royal Dutch Shell ‘B’ (RDSB), makes up over 18% of my HYP by value in what I call “Basic Materials” – digging holes in the ground – a full holding in my view. Consequently, I have never considered EVR and not even looked at their details, although I am somewhat curious as to that yield which I believe is in excess of 12.00%?

Centrica PLC (CNA): I do not hold in my HYP but I did purchase back in 2014 for a family member HYP. The next year the dividend was cut and therefore CNA became off-limits. Since then I have seen no reason to change that view. Maybe next End of Year Results?

To get back to SSE and the topic of this thread, the Trading Update / Profit warning is of course not good news. Indeed, If SSE were not already rejected pending the spin-off of capital planned for later this year or early 2019, it would probably be rejected anyway. As an HYPer I am of course heartened by:

Dividend for 2018/19 and beyond

SSE continues to expect to recommend a full-year dividend of 97.5 pence per share for 2018/19 and to deliver the five-year dividend plan set out in May 2018.

https://www.investegate.co.uk/sse-plc-- ... 00054794A/

But even that does of course beg the question what then?

Of course that is a question that I cannot answer and nor can anyone else without making all sorts of assumptions which apparently now include reading the minds of SSE Directors, even before they wake up, as well as knowing already the result of the next UK General Election, which may not even take place until the middle of 2020! Well, I do not have a crystal ball to gaze into and cannot tell the future. Furthermore I do not believe any who claim they do and can.


Ian

[Raptor]

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[kempiejon]

I will not buy SSE at the moment because there are better yields available and also I have decided to await the "restructuring" planned for later this year.

Ian

The current effective yield of SSE is over 8.5% at the moment... which is rather high. Even higher yields are available at Evraz, Persimmon and Centrica but perhaps you are looking "elsewhere" beyond the FTSE100 ? If I might ask, where do you see such opportunities?

I do not have too high as a reason not to buy, SSE is one of my larger holdings and as has been pointed out the timetabled corporate action would prevent me from buying more. As per Centrica - they cut their dividend in 2014, it has still not recovered to that level and has been flat for the past few years. I hold CNA but thier lack of increasin income would rule them out for a new/further HYP money, Evraz has only paid recent dividends this year and last, it's maiden was in 2011, followed up again in 2012 and then nothing til 2017 that rules them out https://www.dividenddata.co.uk/dividend ... y?epic=EVR and Persimon has been dishing out specials but only has 3 years of normal a borderline pass I think and I did buy some in March I'm hoping those specials may long continue.

[Dod101]

I suspect that reality will dawn on the Directors of SSE rather sooner than we think and the dividend will be rebased well before any spin off of the retail arm.

An interesting suspicion, given that SSE expect that spin off to complete in Q1 2019. The only scheduled dividend announcement before then is the interim results announcement expected on November 14th. So either you suspect they're going to "rebase" the dividend in that announcement, or that they're going to make an unexpected dividend announcement at some point, or that they're not going to be able to keep to one or other of their expected dates... Or of course, possibly you've failed to think about the implications of your suspicion?

FWIW, I won't be particularly surprised if they do "rebase" the dividend, and I also won't be particularly surprised if they don't - and I've seen too many people get such predictions (even ones they've made very confidently) wrong in both directions to be at all impressed by them!

Gengulphus

G
I am not expecting you or anyone else to be impressed by my thoughts (which are not predictions)

Dod

[Markblox]

It's not really a loss though is it, just a lower valuation. It only becomes a loss if the shares are sold. I know I'm stating the obvious but think it's worth pointing out that valuations change over time.

That is a nice bit of kidology. It is still a loss if the valuation is lower (than from whatever your previous valuation point was ) It is though 'just' an unrealised loss.

Valuations change over time, sometimes resulting in a loss and sometimes a profit. There is market noise and that is maybe what you mean, but sadly SSE 's finances appear stretched at the moment anyway, and the sort of shortfall mentioned in their trading statement usually results in more than market noise. Today it resulted in a more than 8% fall in the share price. Capital does not matter?

I suspect that reality will dawn on the Directors of SSE rather sooner than we think and the dividend will be rebased well before any spin off of the retail arm. I still hold some.

Dod

Thanks Dod for the compliment! I wasn't talking about SSE in particular but the investor psychology that can lead to a sell simply because the share price has fallen, because as you will know I'm sure, that most shares are bought after they have risen and sold as a result of a reduced price and often the resulting transaction is a knee-jerk reaction.
Obviously if the investment case changes then that has to be considered but it is the normal HYP response to a fallen share price to do nothing. Dividend cuts are a different thing entirely.

[88V8]

All my utes are underwater. Most annoying. I know it's the divis that matter, but Mr Market seems pretty sure that utes are not currently a good place to be, and with SSE, Centrica, National Grid, I seem to be in all the wrong places.
Whichever Govt we have, they seem determined to pander to the lowest common denominator of pubic opinion by interfering in retail pricing.

V8

[MDW1954]

All my utes are underwater. Most annoying. I know it's the divis that matter, but Mr Market seems pretty sure that utes are not currently a good place to be, and with SSE, Centrica, National Grid, I seem to be in all the wrong places.
Whichever Govt we have, they seem determined to pander to the lowest common denominator of pubic opinion by interfering in retail pricing.

V8

Don't forget that the market is all about short term thinking. You are competing with fund managers who have to meet quarterly benchmarking targets against their peers -- which often, worse, are based on capital values, not income.

It is the market's disdain that throws up high yield opportunities in the first place.

That isn't to say that I would pile into utilities at present, but it is to say that 2.5 years ago, the so-called "smart money" drove oil and other resource stocks down to the floor, leaving superb yield opportunities to be had. Utilities simply aren't at that point yet -- and could never get there, of course.

MDW1954

[moorfield]

Continuing to hold and happy to live with the noise until SSE becomes McNationalGrid. I'll probably dump SENpower when that arrives, unless it announces an unambiguous divi policy from the outset. I'm not topping up any utes anyway until Corbyn&McDonnell are dumped after the next general election or labour leadership contest, which ever happens first.

You assume they won't be winning....

Indeed I am. And if they do, I fear we'll all have bigger things to worry about than flaneuring around here on LF with our HYPs ...

[Gengulphus]

To get back to SSE and the topic of this thread, the Trading Update / Profit warning is of course not good news. Indeed, If SSE were not already rejected pending the spin-off of capital planned for later this year or early 2019, it would probably be rejected anyway. As an HYPer I am of course heartened by:

Dividend for 2018/19 and beyond

SSE continues to expect to recommend a full-year dividend of 97.5 pence per share for 2018/19 and to deliver the five-year dividend plan set out in May 2018.

https://www.investegate.co.uk/sse-plc-- ... 00054794A/

But even that does of course beg the question what then?

Of course that is a question that I cannot answer and nor can anyone else ...

Well, I think we do have a partial answer, in the form of the statement in SSE's annual report earlier this year that "This plan for the dividend for the five years to March 2023, when the current electricity distribution Price Control comes to an end, ...". Clearly that means that neither SSE's directors nor anyone else can really plan beyond then before they have a reasonable idea what the outcome of the next round of electricity distribution price controls is likely to be, and that clearly depends on how strictly they get constrained by the regulators, which will depend among other things on what complexion the government turns out to have...

So the partial answer is that it depends on that next round of price controls - which of course doesn't tell us anything much about what the dividend will turn out to be after them. But it does tell us why the SSE directors have stopped their forward planning where they have, and it does tell us not to expect the plan to be extended another year forward next year, etc. It can be expected to reduce naturally to shorter periods as time goes by, and only to get extended (probably by about five years) when the outcome of the regulator's price review starts to become clear.

Gengulphus