Broker snap: Divi under threat at SSE

8th Nov 2010 13:08

Nomura has downgraded its stance of power and water utility Scottish and Southern Energy (SSE) to 'reduce' due to a risk of lower earnings and a possible threat to the dividend.The broker has cut its SSE earnings forecast for 2012 and 2013 by 7% and 11% respectively because of a weaker power price environment.Nomura also has balance sheet concerns, despite SSE's £500m placement last year and a groundbreaking £1.2bn hybrid corporate bond offering.To meet the expectations of rating agencies, spreads on power prices from both gas-fired and coal-fired generators need to rise by an unlikely £4/MWh (megawatt hour) and a dividend cut is not completely out of the question, the broker says.In the longer term, management will also need to decide on future growth platforms and capital expenditure commitments, which may require additional equity funding that could also affect SSE's major attraction - the dividend.SSE shares are not significantly overvalued but Nomura prefers Centrica. The SSE target price has been revised to 1,110p.