SSE PLC Freezes Prices Until 2016 And Cuts 500 Jobs

SSE PLC’s (LON: SSE) move pre-empts formal inquiry into energy sector.

Mark Stones

Mark Stones (TMFMumbojumbones) joined The Motley Fool in 2014 and initially worked as a writer for Fool.co.uk, before joining the Fool’s analyst programme. Mark earned a BA in English from Loughborough University. Although he spends more time reading annual reports than Russian literature these days, he still appreciates a novelist’s antipathy toward the accepted view, which is a useful attitude when trying to sniff out hidden gems on the stock market. His approach to investing has been largely influenced by the principles of Warren Buffett and Peter Lynch. He also takes a special interest in the work of healthcare companies. Outside of investing, Mark plays guitar, enjoys good writing and has a guilty passion for combat sports.

Published 26 March, 2014 10:29 am GMT

| More on: SSE

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

The share price of SSE (LSE: SSE) (NASDAQOTH: SSEZY.US) added 23p to 1,521p during early trade this morning after the energy supplier revealed plans to trim costs by £100m in the next two years.

SSE announced it will cut 500 jobs and reduce investment in offshore wind farm developments as part of the cost-cutting drive.

Additionally, SSE has promised to freeze gas and electricity until at least 2016. While this will lower profits for the group, it will streamline the business in attempt to offset this.

The energy market has been under attack from politicians due to longstanding concerns that there’s a lack of competition, and SSE’s price freeze is likely a pre-emptive measure prior to a formal inquiry.

SSE’s chief executive, Alistair Phillips-Davies, commented:

“We’re setting out a positive agenda for customers, including our price freeze to 2016; we’re making sure our own house is in order for the future by streamlining and simplifying our business; and we’re making clear we wish to work with people to find more ways of taking costs out of energy bills.

“In all of this, I hope that people will see a company like SSE not as part of the problem but as part of the solution.”

After this morning’s price movement, shares in SSE may trade on a price/earnings ratio of 13. The shares offer a prospective income of 5.8%, covered 1.3 times by earnings.

Whether you feel earnings will be crimped too much by today’s price freeze, the decision to ‘buy’ or ‘sell’ remains up to you.