Morgan Stanley upgrades SSE to 'overweight'
Morgan Stanley upgraded its view on SSE shares, arguing that the company's divestment of its Retail and Exploration and Production arms would simplify the business, raising the profile of its renewables operations and in turn resulting in a higher valuation multiple.
The investment bank's latest analysis shed a roughly £10.0bn valuation for SSE Renewables and for the company's thermal assets.
In itself, that meant the former were undervalued and meant no new growth was being factored-in.
"We believe an exit [of the B2C Retail unit] would remove an overhang and catalyse a re-rating. If SSE traded on a National Grid DY (6%) then we could justify ~20% share price upside (>1,350p)," they said.
And Morgan Stanley forecast that a reduction in SSE's trading losses, together with renewables coming on-line and higher power prices would drive greater than 20.0% growth in the company's earnings per share over 2021 and 2022.
The analysts also highlighted how, based on history, the shares were then changing hands at an approximately 20.0% discount to the sector and of 7.0% versus the wider market, as well as its "impressive" 7.0% dividend yield.
Furthermore, while there was some uncertainty as a result of Brexit and the possibility of an early election, Morgan Stanley pointed out how polling was more split than in the past.
Morgan Stanley also bumped up its target price for SSE's shares, from 1,255.0p to 1,290.0p.