What's going on?
On Wednesday, Scottish energy company SSE warned investors that the hot European summer would melt away some of its profit this year. Investors let off steam and the shares let off value – 9%, to be exact.
What does this mean?
Summer wasn’t a good time for SSE – no surprise for a company that effectively sells heat and light (nobody’s buying it when it comes for free). The warm and dry weather also affected SSE’s renewables business, where less wind and rain resulted in lower-than-expected output (and less energy to sell leads to less money coming in). And, to rub salt in the wound, SSE can’t raise its prices to offset weaker sales, thanks to impending government-imposed price caps.
All in all, SSE’s anticipating profit for the six months through the end of September to be half what it was in the same period last year. Who’s got the aloe?
Why should I care?
For markets: The landscape’s changing.
As more power’s generated by renewables, energy companies will be more vulnerable to the weather. While power plants can largely chug along come rain or shine, power generated from wind turbines and hydro dams relies on… wind and water (no kidding). The elements are out of energy companies’ control, but at least companies in the same places will be contending with the same weather. Shares of SSE’s peers, E.ON and Centrica, also fell – by 4% and 3%, respectively.
For you, personally: Slow and steady wins the race – for your pension.
Typically thought of as boring old companies, utilities usually have pretty reliable cash flows – people always need energy to heat their homes and prices are regulated – and they pay regular dividends. This makes them popular investments among investment managers who look after pensions, where the predictability of cash coming in (to make regular payouts to retirees) is important. Although it may not seem so, keeping an eye on utilities stocks is also keeping an eye on your future.