Retail sold for £500m, completion expected late 2019/early 2020 SSE has entered into an agreement to sell its SSE Energy Services business to Ovo Energy for an enterprise value of £500m (£400m cash, £100m loan note) in a transaction expected to complete in late 2019/early 2020, subject to the necessary approvals. Ovo will be #2 in the UK market for both electricity (c.18% market share vs. British Gas c.19% market share) and gas (c.15% market share vs. British Gas c28% market share), and given that the terminated SSE/npower transaction received CMA clearance, we would not expect anti-trust issues.. Valuation 43p/share short of our £958m The possible transaction was flagged in The Sunday Times on 11 August which suggested an initial payment of £250m, with additional deferred consideration. Measured against this, the transaction value is arguably a positive, albeit a negative of 43p/share on our SOTP given our £958m valuation. EPS impact needs clarification SSE’s retail business is included in SSE’s accounts as a discontinued item, and excluded from SSE’s definition of underlying earnings. The impact on earnings will depend on the amount of debt sitting at the retail business, the magnitude of the service provision under the Transitional Services Agreement, and the accounting treatment of the 13.25% interest payable in kind on the loan note. We await clarification from SSE on these issues. SSE has reiterated its intention to recommend a full-year dividend of 80p/share, with RPI growth through to March 2023. Strategic clarity welcomed, but challenges remain The disposal of the retail business to Ovo accelerates what would have been a longer process, and one without guarantee of success, had a listing been sought. It provides greater strategic clarity, and allows SSE to fully focus on networks and renewables, and is a positive. However, we caveat this with a valuation that is below our expectations, and the challenges posed by a tougher regulatory backdrop, political noise around nationalisation, and competitive CFD auctions for renewables. We do not expect the disposal to trigger a re-rating of the stock.