UBS hails dividend yield at SSE, lifts target price

2nd May 2014 11:25

UBS has hiked its target price for SSE from 1,475p to 1,620p and maintained a 'buy' rating, saying that the utility group's dividend yield is both highly attractive and sustainable.The bank said that dividend yields across the European utilities sector are "increasingly attractive", yet SSE's 6% yield and real growth policy "is a standout". "We believe SSE's divi policy is sustainable and that their cash dividend is not only fully covered by cashflow generation, but that this cashflow also covers over 70% of growth in capex on UBS estimates. "We see no realistic scenario that SSE either requires equity [raise] or a divi cut. We also like SSE's high exposure to regulated networks and renewables, which drive the vast majority of our forecast earnings growth."Nevertheless, despite SSE's "standout" dividend yield, the stock only trades in line the sector on a price-to-earnings basis, UBS said."We believe that this undervalues the company and its 'winning' business model."The bank said that SSE does face three main "risks", arising from regulatory changes, political elections and the Scottish Independence referendum. However, the stock still offers "good value" which should be enough to outweigh these issues.The stock was 0.4% higher at 1,535.64p by 11:43 on Friday.BC