Market Data 
Investing.com — Shares of SSE (LON:) slipped after Jefferies downgraded the stock to “hold” from “buy.” The revised recommendation comes on the back of the analysts’ updated risk-reward assessment following SSE’s latest trading update for the first half of fiscal year 2025.
At 8:08 am (1208 GMT), SSE was trading 1.6% lower at £1,861.
However, Jefferies maintained its price target of 2,050p but indicated that the stock’s recent strong performance and current valuation leave limited room for upside.
Jefferies’ decision to downgrade reflects concerns about SSE’s near-term growth prospects, despite its broadly in-line financial performance.
The renewable energy and power network company has seen a solid rally in its share price since February, and the stock now trades at 10 times its projected FY26 EV/EBITDA, a valuation that Jefferies sees as “in line with peers.”
This elevated valuation, coupled with sector-wide trends, led analysts to conclude that the stock’s risk-reward profile is now more balanced. With the shares having gained momentum earlier this year, the opportunity for significant further appreciation appears constrained.
SSE’s trading update provided fresh details on the company’s expected earnings for first half of fiscal year 2025, including an EPS indication of 45p, a 22% year-on-year rise.
This is consistent with company guidance, and Jefferies’ estimates for the period align with these projections.
“With this, we model 1H25 EBIT of £791m, +14% yoy, with 1H EPS to 45p, +22% yoy,” the analysts said.
Key divisions, such as Networks and Renewables, are expected to post steady gains, with Networks forecasted to contribute £456 million to overall EBIT and Renewables £206 million.
However, the Thermal and Gas Storage division, while projected to generate more than £200 million in EBIT for the full year, delivered more modest earnings in the first half, contributing just £40 million to the total.
Despite these solid headline figures, Jefferies expressed caution regarding SSE’s outlook beyond the current fiscal year.
However, a 15% reduction in FY25 EBIT for SSE’s Thermal and Gas Storage division reflects a more conservative stance, with Jefferies highlighting the company’s comments about a heavy second-half weighting for this segment.
Renewables, a critical growth driver for SSE, is expected to deliver stronger results, with Jefferies raising its forecast for the division’s FY25 EBIT by 1%.
Beyond the immediate financials, Jefferies also pointed to execution risks surrounding SSE’s flagship offshore wind project, Dogger Bank. SSE has faced delays in commissioning the Dogger Bank A phase of the wind farm, which could create a ripple effect on subsequent phases (B and C).
These delays have raised concerns about potential cost overruns and the overall timing of the project, although SSE has reiterated that the project’s returns remain broadly in line with initial expectations.
However, Jefferies emphasized that the market may need more concrete progress on turbine installations before the stock’s overhang, caused by these execution risks, can fully unwind.
With the stock currently trading at 10x FY26 EV/EBITDA and offering a dividend yield of 3.7% for FY26, Jefferies sees little room for further multiple expansion in the near term. This dividend yield trails the broader sector average of around 5%, which may also temper investor enthusiasm.
Jefferies’ price target remains fixed at 2,050p, implying a 12-month total shareholder return of about 11.5%.
The brokerage’s base case suggests that SSE will trade on a 12x FY26 P/E multiple and a 10.5x EV/EBITDA ratio, assuming stable grid revenues and power prices.
The downside scenario envisions a potential price decline to 1,600p, driven by weaker-than-expected power prices and softer grid returns, while the upside scenario could see the stock reach 2,300p if power prices and grid earnings outpace current forecasts.
