Keeping both customers and shareholders content is rarely easy for a power utility, as yesterday’s full-year figures from Scottish & Southern Energy attest. By being the last of the six retail energy suppliers to increase its tariffs – by some 15 per cent in March – the owner of Southern Electric and Scottish Hydro Electric gained an additional 700,000 customers in the past year, swelling its tally to 8.45 million domestic accounts and making it the country’s second-biggest supplier behind Centrica. The rub for shareholders is that surging energy prices – wholesale electricity and gas prices are up 31 per cent and 35 per cent respectively since March – mean the success of SSE’s tariff stance is in danger of backfiring. Those hard-won new customers may prove loss-making in the short term, and effectively wipe out the company’s supply profits this year. Such concerns, together with worries over the severity of forthcoming regulatory reviews, have sent SSE’s shares down more than 11 per cent since January, belying their safe-haven status that had hitherto enabled them to outperform.

But yesterday’s numbers show SSE’s investment case to remain intact. First, although current-year profits from generation and supply, up 13 per cent last year, will partly depend on further tariff increases, SSE also benefits from higher energy prices through its coal-fired power stations. With coal prices having risen less than gas prices – to which wholesale power prices are pegged – stronger generating margins should offset weakness in supply. SSE’s spread of generating assets helps in other ways. Some 10 per cent of its portfolio comprises renewable generation, against 5 per cent for the UK as a whole, for which higher wholesale prices are also positive.

Second, SSE has lost none of its obsession with raising its dividend, which was yesterday increased by 10 per cent to 60½p – providing a prospective yield of 4.2 per cent – and has doubled over the past seven years. The public stance is of a 4 per cent real annual increase – 7 per cent at current levels – for the next two years, but on most projections there is no reason to believe that a nominal 10 per cent should not be sustainable, despite plans to increase capital expenditure to £1.3 billion from £810 million last year.

Jitters over a potential political backlash – from a perception that utilities are profiting from high energy prices – are likely to persist. However, with SSE continuing to invest heavily in renewable energy to meet government objectives, not least in the £1.1 billion purchase of Airtricity, the wind farm operator, that threat should be kept at bay. At £14.66, or 13 times current-year earnings, SSE is a solid hold.

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