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SSE falls as profit surge keeps windfall tax risk alive

By Geoffrey Smith

Investing.com -- Shares in SSE (LON:SSE) fell 1.9% by late morning in London on Wednesday, after the U.K.-based utility reported a fourfold rise in adjusted profits that investors feared will keep the risk of a government tax grab alive.

SSE said adjusted earnings in the three months through September rose to 41.8 pence a share from 10.5 pence a year earlier, thanks to a surge in profits at its core power generation business - most of it coming through its conventional gas-fired generation and storage businesses.

However, it reported a net loss for the period of 39.7p/share as it marked to market historic long-term forward contracts to supply power at prices that are well below current spot levels.

Chief executive Alistair Phillips-Davies went out of his way to stress the role that SSE's heavy investment in renewables - particularly in large North Sea wind farms - is playing in helping the U.K. reduce its dependence on foreign gas and reduce its carbon footprint.

"We are investing around £12.5 billion in the five years to March 2026, with further opportunities that could take the total to over £25 billion this decade in the U.K. and Ireland alone," Phillips-Davies said. "This direct investment primarily in offshore wind, U.K. electricity networks and flexible thermal will create the technologies to support long-term energy security."

The opposition Labour Party, currently leading in the opinion polls, has pressed the Conservative government repeatedly to raise more taxes from the energy sector to cover a crippling rise in living costs for much of the population. However, leaked reports suggest that Chancellor of the Exchequer Jeremy Hunt is set to spare the generation sector a punitive windfall tax, fearing that it would stop Britain from meeting its climate goals and send a bad signal to companies about investing in Britain.

Despite the extraordinary volatility in its operating business this year, and the political uncertainty that that has created, the company upheld its guidance for adjusted earnings this year and said it will stick to its plans for progressive dividend increases over the next five years after "resetting" the payout at 60p/share in fiscal 2023. It also expects net debt to be below its target of 4.5 times EBITDA by the end of fiscal 2023 and repeated its forecast of 7%-10% earnings growth annually through 2026.

SSE also noted that its company pension scheme had emerged unscathed from the brief but violent swings in the U.K. government bond market following Liz Truss's ill-judged attempts to push through radical tax cuts in September.

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