Having fallen by 18% in the last year, the prospects for the SSE PLC (LON:SSE) (SSE.L) share price appear to be relatively downbeat. A recent profit warning seems to have hurt investor sentiment, while potential risks could keep the company’s valuation pegged back in my view.
Among these risks is political risk. Labour is apparently in favour of nationalising a range of industries, and this could mean that investors price in the potential threat of a general election over the medium term. Alongside this, regulatory risk is still high in my opinion, with the prospect of changes to the variable rate tariff price cap potentially ahead.
At the same time as this, SSE is in continued talks with npower regarding the demerger of its UK domestic energy supply business. It has been hoping to merge the two businesses, but talks are set to go on for longer than expected. While a demerger is still in the company’s plans, the joint venture to create a dominant UK energy supplier may or may not take place.
Therefore, I wouldn’t be surprised if further volatility is ahead for the stock. Its defensive appeal seems to have declined to at least some degree in the minds of investors, while its potential to deliver improving financial performance seems to be uncertain.
That said, SSE is still on track to deliver on its five-year dividend growth plan. This could mean that dividend growth remains ahead of inflation. And with a dividend yield of over 7% following its share price fall, I feel that the stock could offer income investing appeal relative to the wider FTSE 100.
Although there could be further risks ahead for the company in the near term, I’m optimistic about its long-term outlook. As a result, I believe it could deliver improved performance after a tough 12-month period.