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The ratings outlook for big six utility SSE has improved as the company shifts investment towards its networks business, according to ratings agency Standard & Poor's.
S&P has revised the company’s credit outlook from negative to stable, reflecting its opinion that SSE will maintain a stable operating performance and risk profile.
The company’s performance is supported by “a shift in investment toward low-risk regulated networks that will account for 40 per cent-50 per cent of EBITDA”, the ratings agency said.
“In unregulated generation and supply, conditions remain challenging, but we believe there is limited downside from this point,” S&P added.
One of the key developments limiting risk for the company is the increased certainty which followed Scotland’s decision in the recent independence referendum to remain a part of the UK.
In SSE’s generation business the company is also expected to benefit from tightening capacity margins and the upcoming capacity auctions given the size of its thermal power fleet.
Meanwhile its decision to freeze retail prices until 2016 “reduces its exposure to political risk” arising from the ongoing Competition and Markets Authority (CMA) probe which is set to conclude at the end of next year.
The ratings agency warned that the outcome of the CMA review could materially impact SSE as one of the UK’s largest energy suppliers, depending on the action taken by the regulator, and added that a further downgrade is possible.
A further upgrade though is unlikely, S&P said.
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