SSE share price up as it starts early talks with the CMA over its merger with Npower
SSE has revealed it is in early talks with the competitions watchdog over its plan to merge and spin off its household energy supply and services businesses with German-owned Npower.
The firm, Britain’s second-largest energy supplier, announced late last year that it planned to create an independent supplier with Germany’s Innogy.
SSE said it has been in “pre-notification discussions” with the Competition and Markets Authority pending the start of the phase one investigation, and confirmed its planned merger was on track to be completed by the last quarter of 2018 or first quarter of 2019.
Customer numbers down but earnings seen higher
In a trading update for the third quarter, SSE said it lost 40,000 customers compared with a loss of 50,000 in the previous quarter as customers shift away from Big Six suppliers in search of cheaper energy bills. The firm had a total of 7.68m customers compared with 8.08m the previous year.
About 71 per cent of the FTSE 100 utility’s customers are on expensive standard variable tariffs, the largest percentage of any supplier.
However, shares were up as much as 1.7 per cent as SSE expects to deliver adjusted earnings per share in the range of 116p to 120p, up slightly from its previous estimate, though lower than last year.
The firm maintained a plan to spend £6bn over the four-year period to March 2020, but it lowered its capital investment expenditure for the full year to around £1.6bn, down from £1.7bn.
In the nine months to the end of December, SSE said renewable energy output was about 25 per cent higher than the same period in 2016 due to wetter, windier weather as well as increased onshore wind farm capacity.
Wind generation output in the nine months was four terawatt hours (TWh), up from three TWh the previous year, while output from hydro generation rose to 2.5 TWh from 2.1 TWh.
George Salmon, equity analyst at Hargreaves Lansdown, said the main question investors will be asking is what will happen to the dividend after it splits off its cash generative UK retail business.
“Shareholders will have an interest in the new Npower-SSE retail entity, but it remains to be seen if their dividend return from both groups will exceed what they’re currently getting.
“In recent years, SSE’s dividend hasn’t always been covered by the cash it generates, so there’s a chance the group could use the deal as an opportunity to rebase the payment down,” Salmon said.
Read more: Beis committee calls for CMA to investigate merger between SSE and Npower