SSE Shares: Rating Cut to Sell at Citi

Citi downgraded SSE (LON: SSE) shares to Sell from Neutral this week, citing concerns over the deployment of its offshore wind fleet and potential risks to earnings.

“SSE has an attractive set of networks and renewable assets,” Citi analysts wrote. “However, we are increasingly concerned around the deployment of its offshore wind fleet and see risks of further delays, which could impact EPS and/or returns.”  

The analysts also expressed concerns about the company's exposure to merchant earnings, which could be impacted by a potential decline in long-term gas and power prices.

“With our more cautious view on long term gas (and therefore power) prices, we also see downside risk to merchant earnings, which continue to account for 50% of the renewable output. Together with thermal volumes, merchant exposure is c.15% of group EBIT. As a result, we see downside risk to 2026/07 consensus EPS,” the bank stated.  

Citi also raised concerns about SSE's balance sheet and its ability to fund future growth, particularly in light of the affordability of UK energy bills\

“Longer term, we question the ability of SSE's balance sheet to fund its planned growth and affordability of UK energy bills without a correction in commodity prices or further policy intervention,” the investment bank warned.  

Given these factors, Citi believes that SSE's shares are overvalued and has downgraded the stock to Sell.