SSE (LSE:SSE) has seen its share price increase steadily since the stock market correction occurred in early March. Full-year results posted yesterday boosted the shares further. What does the outlook ahead look like and should I add SSE shares to my holdings?
Energy crisis
As a quick reminder, SSE is a multinational energy company headquartered in Scotland that provides energy to millions of homes in the UK.
A lot has been made of the recent cost of living crisis and the energy price cap rising in the UK in the past few months. Investor sentiment dampening towards energy companies wouldn’t be a surprise to me.
Despite this, SSE shares have been on an upward trajectory since the market correction in March, and more broadly too. As I write, the shares are trading for 1,800p. When the market correction occurred, the shares reached as low as 1,565p, which is a 15% increase in just less than three months. The shares are up 18% over a 12-month period as they were trading for 1,522p this time last year.
SSE shares have risks
The current risks associated with SSE and its investment viability are linked to the energy crisis and the UK government’s response. There have been calls for and rumours of a windfall tax on energy companies. This could mean profits generated are taxed more than usual, which could affect investor sentiment and returns.
The other risk with potentially increased taxation is that this could lead to a slowdown in investment into renewable energy and general investment. Investment can lead to growth, boost performance, and underpin investor returns. So this is one aspect I will be keeping my eye on when it comes to SSE shares.
The bull case and verdict
SSE released full-year results yesterday for the period ending 31 March 2022 and these were largely positive based on the share price spike yesterday. It reported that operating profit increased by 14% compared to 2021 levels. Furthermore, earnings per share increased and debt levels decreased. One key point that stood out for me was its investment expenditure. SSE has committed to investing £12.6bn into the business and its infrastructure by 2026. It had a record year for investment in 2022 with a total of over £2bn spent. As I said earlier, investment should underpin growth and investor returns in the long term.
At current levels, SSE shares look good value for money to me too on a price-to-earnings ratio of just less than eight. It is worth remembering the FTSE 100 average is 15.
Finally, SSE shares could boost my passive income stream through dividend payments. The current yield is just over 4.5%. Dividends can be cancelled at any time, however.
Right now the rewards outweigh the risks for me personally. I am seriously considering adding the shares to my holdings but will keep a keen eye on developments, especially any potential windfall tax imposed by the government.