This article appears to state the following:-
a) That the merger will result in a new independent company majority owned by SSE with a minority holding by Innogy (the german company that owns Npower).
b) That the new company will have a customer base of around 11.5 million making it the countrys second largest after Centrica's British Gas.
c) The deal is subject to shareholder and regulatory approvals and SSE said that it expects the transaction to be completed by the last quarter of next year or the first quarter of 2019.
This says that Innogy will hold a 34.4 percent stake in the combined entity, with SSE to own the rest.
From this information I have made the following additional inferences:-
1. That presumably SSE will have to go through some kind of share split when the existing retail operation is spun-off. This operation seems to me to have the potential to affect both the share price and the dividend for the new SSE.
2. That SSE (minus the retail business) will indeed be focused on only the power generation aspects of the business, which sounds like their intended strategic direction based on previous articles in the press.
3. That the market cap of this new SSE will be reduced, but given the small size of the retail operation my guess is that it will still be big enough to be a FTSE 100 Company.
4. That the new company (SSE + Npower) will be majority owned by SSE and so existing SSE shareholders will presumably receive shares in this new company when it is floated.
5. That the market cap of (SSE + Npower) will be smaller than that of SSE and my guess is it wont be big enough to be a FTSE 100 Company. Could be wrong here ?.
6. That if the merger doesnt go through (either due to not getting regulatory or shareholder approval) then presumably then SSE may then consider the option of just selling of the retail business (?) and its customer accounts, leaving them with the power generation business which it seems is their strategic target ?. Or perhaps this option is just some kind of threat to try and leverage regulatory approval for the merger ?.
THESE INFERENCES COULD BE COMPLETELY WRONG - BUT APPEAR LOGICAL TO ME
All of which would make for a pretty high level of uncertainty over the next 12 months, which I suspect wouldnt be good for the share price.
Again I would welcome informed comments that would help identify any errors in the above. As will be apparent I am merely making inferences from articles that have been published online. I do not currently hold any SSE shares but am performing this analysis with a view to potentially doing so.
I too am struggling to comprehend exactly where SSE are intending to go, I used to be a customer of N Power and now am already a customer of SSE and used to be an investor in SSE and was contemplating reinvesting but the Gov threat on fuel prices puts me off, look what happened to CNA ! Also I left NPower because of the way the company was being run, they could not get the electricity bills right!!
So like you PrefInvestor1 I would like to read a few more comments on the current situation at SSE
With the closing price on Friday of 1324 and with the interim dividend of 28.4p due to go XD on the 19/1 these could soon be trading at less than 1300. Looking at the charts these havent traded at lower than 1300p since about March 2012 and at the price the prospective yield is over 7%.
At first sight this looks very interesting, though of course weighted by the Corbyn blight.............
But I confess I dont fully understand the following big issues:-
a) Will the merger with npower expand SSEs retail operation or will the whole lot be spin off into a new company separate from SSE ?.
b) This merger was very good news for the share price for about a day on the 7/8th Nov when it was announced, but the impact fell away completely after that - and the share resumed its slow downtrend. Why is that ?.
c) Given the separate report that SSE are considering completely exiting the retail market and selling all of their retail customers to some new supplier (that came out at pretty much the same time as the merger announcement). How does this work given a) and b) above ?.
Looking at the latest accounts I think I can see why they are considering c) as most of SSE's profit is made in the other areas of the business. But I am sure given the sensitivity of the share price of the Big 6 to changes in customer account numbers such a change might have a significant impact on the share price. But then if the merger goes through their customer numbers will increase significantly - but this will put them even more in Mr Corbyn's cross hairs !.
So right now I confess I dont know how to assess all of the above. In some ways it looks attractive and in other ways potentially high risk.
Appreciate any considered input on these issues to help me clarify my thoughts !.
The margins are now so small they are not worth bothering with. I believe SSE should get rid of all the customers and let the smaller companies take over. Generating the electricity is going to be more profitable, therefore, they should stick with this.
CNA has taken a massive fall today. It has been evident for a few years now that the Big 6 have been exploiting their market dominance and customer inertia to rip off their customers, particularly those on SVRs. They have been riding for a fall.
There is no reason that I can see that would make SSE any less vulnerable to loss of customers to smaller, cheaper rivals as switching takes hold.
Jefferies has upgraded energy supplier SSE (SSE) following its deal announced earlier this month to spin off its retail energy business and merge it with Npower.
Analyst Ahmed Farman upgraded his recommendation from hold to buy and increased the target price from £14.00 to £17.00 after the two big six energy suppliers announced they would merge to create a UK-listed energy company with 11.5 million accounts. The shares rose 11p to £13.42 yesterday.
We believe that the spin-off and merger of SSEs domestic retail business with Npower would create material synergies, improve visibility on SSEs under-rated network and renewable assets, and result in more focused business models, he said.
These factors should drive a re-rating in-line with recent sector precedents.
He added that the merger will create a more sustainable dividend.
We estimate the combined full year 2019 dividend per share to be 86p, lower than current consensus for SSE [at 100p]. However, the current 2018 dividend yield of 7% versus peers at 5% suggests that a cut is already priced in. We see a credible, rebased dividend as positive for the stock, said Farman. "
DUESSELDORF, Germany (Reuters) - German energy group Innogy (IGY.DE) will at some point pull out of the planned British retail supply joint venture with peer SSE (SSE.L), its chief executive said.
Last week, the two groups announced plans to merge and list their British retail units to better compete with smaller rivals and reap badly-need synergies in a market with razor-thin margins.
Innogy will hold a 34.4 percent stake in the combined entity, with SSE to own the rest, but Innogy Chief Executive Peter Terium said this structure would not last forever.
No, we will not hold on to it in the long-term, Terium told journalists late on Tuesday, adding this did not mean that the company would sell its stake soon.
Innogy has committed to holding its stake for at least six months from admission of the joint venture, which would combine Innogys struggling British unit npower with SSEs British retail supply business.
The deal is expected to be completed by the first quarter of 2019 at the latest.
Terium said Innogy could sell its remaining stake if there is a good offer, but added the group did not need the cash in the short term and could focus on maximising the entitys value in a first step.
This can well take several years, we are in no rush, he said, adding that Innogy would not completely withdraw from Britain, which remains a key market for wind farms, as does the United States, where Republicans have proposed wind support cuts.
Terium said that despite this the group remained committed to the United States wind market, where it plans to invest a triple-digit million euro amount, possibly more.
We will certainly show further growth there, Terium said, confirming plans for a first U.S. wind project in 2018.
Terium said he regretted the decision of supervisory board Chairman Werner Brandt to step down from his post, adding that collaboration had been excellent.
He did say that Brandts reasons for the move were personal, seeking to allay possible concerns that there was a conflict of interest due to Brandts post of supervisory board chairman at Innogys parent RWE (RWEG.DE).
There are no business reasons that affect Innogy or RWE, Terium said, also trying to prevent speculation about a possible offer for RWEs 76.8-percent stake in Innogy, which sources said has caught the eye of peers including Engie (ENGIE.PA), Iberdola (IBE.MC) and Enel ENEI.ML
Ah so merging SSE & Innogy's energy supply businesses is adapting the business to "the political, economic, social and technological requirements of customers and of society as a whole". meaning "in response to price caps."
The combined business would be listed and SSE would demerge its shares to its shareholders.
I would have thought that an arrangement which reduced debt (like a sale) would be best for SSE. They can package some debt with the new business but probably nor much.
Logic is presumably consolidation improves market power and profitability. Regulator will no doubt look hard at this, but presumably not enough of the market to justify a competition referral.
Market likes it but I'm not sure shareholders will be much better off after a demerger,. Advisers will no doubt be well rewarded.
This story looks like a counter threat to scare politicians away from further price caps or other controls. The piece is premium so only first part visible unless you have a subscription but I think that gives enough of a picture.
It is not clear that this would help SSE unless they could sell the business at a good price as part of consolidation of the industry where remaining players get scale and greater clout in negotiations with tinkering politicians. Any consideration received would presumably be returned to shareholders/pay down debt and/or invest in more profitable areas.
Retail which presumably the only activity at question represented 22.5% of last year's FY total adjusted profit (and presumably a shrinking proportion of future profits), material, but not dominant. There may be synergies from operating through the full supply chain which may be lost, but I suspect that the market in energy supply is pretty efficient and so probably not such a big hit, and some stipulations in any sale agreement could protect SSE generation wholesale and network businesses.
I suspect this story will not been seen as positive by the market, more like desperation and more uncertainty, at least in the short term. Also there is nothing to say that any future Labour (Corbyn) administration would stop at caps on retail supply pricing, other parts of the supply chain would no doubt be in play for more regulation.
Britain's second-largest energy supplier is eyeing the exit as the Governments crackdown on energy bills threatens profits.
SSE, formerly known as Scottish and Southern Energy, may turn its back on supplying gas and power to almost 8m British homes after years of political threats against the six largest energy companies comes to a head.
City sources say the FTSE 100 energy giant is quietly discussing early plans to sell off its customer accounts, or even spin the business off as a separate listed company in order to focus on networks and renewable energy and avoid the Governments looming energy price cap.
The chance of a radical change to the Big Six comes as ministers legislate the deepest intervention in the market since privatisation in order to cap standard tariffs.
At this stage the business is more trouble than its worth, said one investment banker who has spoken with SSE executives....
I took the opportunity to sell out at 1410. Just about in profit on my two tranches including the dividend. Reasons:-
a) I confess I dont think that we've seen the last of energy cap threat to the gas and electric utilities and when the new legislation comes to the forefront I suspect that these shares will come under pressure again.
b) The less immediate long term threat from JC and the labour party.
Decided to get out with a small profit and look elsewhere.
First of all to accuse someone of being feckless, stupid, indolent and lazy is just crass and I would be with you on your condemnation of such language.
I would however like to point out that this sort of behaviour (exploiting customers who stay loyal - for whatever reason) is not unique to the energy industry. I would cite telecoms companies that do not modify your tariff once your device has been paid for under a minimum term contract; and insurance companies that automatically renew your policy - in my experience even though I have told them Ive gone elsewhere.
At least the energy companies have a default position (the standard variable rate) that you automatically transfer to once your contract has finished. And you are free to move from this arrangement at any time without penalty - unlike a typical mobile phone or insurance contract.
So if we are going to kick the energy industry for exploiting inactive customers, I think there are other industries that we should kick even harder while we are at it.
I posted on another board how one afternoon's work saved an elderly friend, my old college lecturer as it happens, £1600 in utility and phone charges. My friend is by no means unintelligent but he is old and vulnerable and he isn't confident with switching and with the computer skills needed to get to the best deals.
I object to you implying that people like my friend are feckless, stupid, indolent and lazy. The use of those words says more about you than him.
Both political parties are right to call out the energy companies for their exploitation of loyal and vulnerable customers.
I also have holdings in energy companies for the dividend income. I do not want to make these profits through exploitation. I want responsible capitalism. In the case of energy companies, they have been warned, deal fairly or be nationalised.
The govt would sound less hypocritical on their moral highground if they were to remove the 5% vat they charge everyone including the vulnerable on electricity and gas. Power, like food is a life essential, there would be outcry if they shoved 5% vat on basic foods.
Tory PM, today at least, seen stealing Labour ideas then watering them down. Since when was it Tory policy to interfere and introduce price caps to protect the stupid and lazy folk who can't be bothered to get themselves on a decent energy tariff? Why not go full fat Corbyn and threaten to renationalise the lot?
If May want to save the indolent and feckless some money then how about raising Income Tax thresholds? At least that wouldn't take thousands of civil servants to administer.
Sorry to get all political but thats what happens when polititians start messing with the market.
Personally, I have a large exposure to energy stocks as I have been keen like many others to get a decent return on savings and investments.
The last thing the high yield dividend investor needs is politicos queering the pitch.
In addition, the Prime Minister also announced that draft legislation would be introduced into parliament next week for an energy price cap, in an attempt to end "rip-off energy prices".
Energy firms such as SSE and Centrica fell following May's speech, as investors spy difficult times ahead for profits connected to the introduction of the price cap.
ETX Capital analyst Neil Wilson said Centrica was likely to be particularly badly hit.
"As noted when the policy was mooted back in May ahead of the snap election, any move to cap prices would be a massive hit to the industry," Wilson said.
"It might cost Centrica something like £200m and make it much tougher for the firm to reintroduce the progressive dividend policy. Like other providers it relies heavily on these standard variable rate tariffs - about three-quarters of customers are on these lucrative contracts."
Centrica dropped 4.93% today against 2.97% for SSE. The Tories seem to be stealing Labour policies vis prices caps and building council homes - poor Mrs T must be spinning in her grave. I'm still not in and thinking maybe not at all this side of an election. Let the trend be your friend but good luck to all anyway.
I felt a bit sorry for her when borris got that little tory guy to hand her the P45 .
She then chocked all through it.
She might not be there long enough to implement her ideas , they are running scared of jerry !
Call for Tom .
I tend to agree with the view that the demand supply balance is likely to be squeezed long term by electric vehicle demand outweighing efficiency gains.
Shorter term it looks like supply issues with French nuclear and German coal fired stations Europe will affect power imports (see article below), the supply balance is already tight. It seems likely SSE and others should benefit.
The big concern is understandably dividend cover. Forecast EPS and Div from 4-Traders shows how reported cover in 2016 was 50%. Looking forward that picture is forecast to remain tight but progressively improve (2017 was flattered by profit on Scotnet gas sale and other exceptionals).
Energy bills in the UK could be set to rise this winter after the cost of power jumped well above last year's prices.
The wholesale cost of winter electricity in the UK market is on average 16pc, or around £7 per megawatt-hour, higher than it was this time last year.
The price rises could spell trouble for British bill payers who faced a flurry of tariff hikes over the spring following last winters volatile energy trading.
This year, energy prices are climbing due to ongoing concerns around Frances nuclear plants as well as Germanys reliance on power from coal, which is trading 50pc higher than last year.
Although the UK burns very little coal to produce power, the country imports electricity from the continent. Germany, Europes largest electricity market, relies on coal to generate almost a quarter of its power.
Jamie Stewart, a power market expert at pricing agency Icis, said German wholesale power prices were 40pc higher than last autumn and French power was 34pc higher year on year.
Wholesale gas prices have also climbed higher after the UK's main gas storage facility, Centricas Rough facility, closed after decades of use.
The main risk factor specific to winter is, again, French nuclear, Mr Stewart said.
The French government has called for a major review of hundreds of plant components as part of an investigation into alleged irregularities and falsification of manufacturing documents by industry giant Areva.
The markets were spooked when EDF was ordered by the French regulator to audit many of its plant components. So with memories of last winter still fresh we saw a lot of risk premium pumped into products for this winter, with traders wanting to cover their short positions and avoid getting their fingers burnt again, Mr Stewart said.
He added that there was unlikely to be a repeat of the outages seen last year, but energy traders were still guarding against the risk by buying up power contracts in advance. The higher prices should provide a strong signal to the operators of gas-fired power generators to keep their plants running as much as possible, he said.
Wholesale gas prices have also climbed higher after the UKs main gas storage facility, Centricas Rough site, closed after decades of use.
Rough does add an extra element of risk to the winter. Gas traders we speak to though are fairly relaxed about the loss of Rough due to UKs general supply flexibility, Mr Stewart said.
Correct. A stupid opening statement in this article, clearly written without research. Your comment re electricity demand for cars is bang on the money. The current electricity grid could not support the move to everyone running an electric car, and since governments and the major auto makers are moving to all electric within 20 years, demand for domestic electricity supply is only going to go up.
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