SSE's outlook revised lower at S&P Global due to high investment, ratings affirmed

Investing.com -- S&P Global Ratings announced today that it has revised the outlook for utility company SSE (LON:SSE ) PLC to stable from positive. This change comes as a result of the company's intense investment program, which is expected to significantly increase its capital intensity up until the financial year ending March 31, 2027.

SSE has embarked on a £20 billion Net Zero Acceleration Programme Plus (NZAP Plus), which is viewed as a super-cycle of investment. The company's concentrated focus on regulated network investments is expected to gradually improve its business risk profile.

SSE's NZAP Plus aligns with the UK's requirement for substantial investments to decarbonize the grid and achieve a net-zero electricity system by 2030. However, the scale of the program is quite large in relation to the company's operating cash flow generation. S&P Global Ratings believes this may slowly diminish SSE's financial flexibility by financial 2027, unless measures are taken to remedy this.

The average funds from operations (FFO) to debt is now projected to be between 18%-20% over the financial years 2025-2027, a decrease from the 28.4% recorded in financial 2024. This reduction also reflects a drop in realized power prices compared to the high levels recorded in the financial years 2023-2024.

Despite these changes, the rating for SSE remains firmly within the 'BBB+' category. As a result, S&P Global Ratings has affirmed its 'BBB+' long-term issuer credit rating for SSE PLC and all of its subsidiaries.

The stable outlook for SSE is based on the expectation that the company will maintain an adequate buffer at the 'BBB+' rating level over the financial years 2025-2027. This includes an average adjusted FFO to debt that is consistently above 18% on a consolidated basis.

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Source: Investing.com