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Investing.com -- UBS downgraded UK utility SSE Plc (LON:SSE) to “neutral” from “buy” after a sharp share-price rally reduced the scope for further gains, even as the brokerage raised its 12-month price target to 2,350p from 2,200p, in a note dated Thursday.
The analysts said the new price target implies about 7% upside, which led to the rating change.
The shares of the Perth-based power generator and networks operator are up 37% year-to-date, and 50% from February 2025 lows, compared with a 27% rise across the utilities sector.
UBS said the performance has largely priced in earlier concerns over funding and regulatory risk, including zonal pricing and capital requirements for the upcoming RIIO-T3 transmission control period running April 2026 to March 2031.
The downgrade comes as valuation support weakens. UBS wrote that SSE “is no longer cheap versus the sector,” pointing to a 2.4% cash dividend yield versus 3.2% at National Grid, and estimating it could take a decade for SSE to reach the sector’s 4.5% cash yield. The report said the FY March 2027 P/E multiple stands at 13x on a post-tax basis.
UBS updated its forecasts to reflect SSE’s new £33 billion capex plan for FY 2026-2030 but modelled £26.3 billion, or roughly 80% of group capex.
The brokerage is £6 billion lower than the company on transmission investment and £1 billion higher on renewables. It expects slower approvals for six major overhead transmission lines costing £13-15 billion, where planning consent is due mid-2026.
The analysts increased expected regulatory returns on transmission, forecasting a rise to 6% CPIH real from 5.64%, contributing to higher forecasts for the regulated asset base and earnings.
UBS values the transmission business at a 53% premium to March 2027 RAB and assumes a 150-basis-point ROIC-WACC spread including outperformance.
The price-target uplift also included higher distribution returns, a £1 billion increase in distribution capex expectations, and higher valuation for thermal assets after extending the lives of Marchwood and Keadby 2 gas plants by five years.
However, dilution from an equity raise of 97.6 million shares at 2,050p, which reduced valuation by 12p per share, partially offset those gains.
Renewable spending cuts were highlighted as a constraint. UBS said SSE reduced renewables capex to £4 billion, or 12% of its plan, the lowest in five years, versus £6 billion announced in May 2025 and £7 billion in 2023. Only half of the Berwick Bank offshore wind project is included.
UBS forecasts FY March 2030 adjusted EPS of 233p, within SSE’s 225-250p target range, and expects about 7% annual growth. But the brokerage said earnings upgrades were offset by higher net debt and limited valuation support.