Investec has upgraded its rating on utilities giant SSE from 'hold' to 'buy' as the group's substantial capital expenditure (capes) begins to 'crystallise'.
While the broker has only made minor changes to its forecasts following the recent Capital Markets Day, the target price has increased from 1,226p to 1,479p to reflect "our increased confidence that SSE will now deliver significant value from its capital investment," according to analyst Angelos Anastasiou.
"After a number of years of lacklustre earnings growth, we are becoming increasingly confident that SSE will deliver improved earnings growth in the current year, and that the ongoing high capex will continue to deliver over the medium term."
The Capital Markets Day on June 27th was focused on the capital investment programme going forward and the broker sees average annual compound growth of 5.5% in basic adjusted earnings per share over the next five years, which underpins average annual compound growth of 4.8% in the dividend over the same period.
"While SSE is by no means risk-free, we believe that, if anything, we may well be underestimating the potential here."
By 10:43, the shares were trading 0.58% higher at 1,426.18p.
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