Ian Marchant, the highly regarded chief executive of Scottish and Southern Energy (SSE), is not accustomed to reporting a halving of pretax profits. That was his unpleasant task yesterday as the £11 billion utility group quantified the damage to its first-half figures from surging wholesale energy prices and power station shutdowns.

Britain’s second-biggest energy supplier was caught out over the summer by the coincidence of reduced output and record wholesale energy prices, which it delayed passing on to customers for as long as possible. Adjusted pretax profits fell by 54 per cent to £302 million.

SSE’s problems with Medway, a gas-powered plant still out of action and not due back on stream until February, are indicative of the ageing nature of Britain’s generating infrastructure. The closure occurred when some of SSE’s other sites were undergoing planned maintenance for the installation of emissions-reducing technology, and left the company sorely exposed to wholesale gas prices that typically were 170 per cent higher than in the previous six months.

The encouragement from yesterday’s figures must be that SSE is expecting “modest profit growth” for the full year, helped by the return of wholesale prices to more moderate levels – a forecast that helped its shares to rise by 5 per cent. The company also offered reassurance that it would stick to its promise of maintaining sustained real growth in the dividend, which provides a prospective yield 5.5 per cent.

Further, SSE’s funding position has improved markedly. In addition to last week’s issue of a £500 million bond, the company has rolled over £500 million of debt relating to its £1.1 billion acquisition of Airtricity, the wind farm operator, until June 2010. This means that SSE has only to refinance £300 million of borrowings over the next ten months.

One persistent risk is that politicians and regulators will seek to capitalise on any perception that energy suppliers are securing excess profits from high power prices and will impose a windfall tax. Yesterday, SSE made clear that it intended to bring retail tariffs down early in next year to head off any such move.

At £11.99, or 11 times this year’s earnings per share, SSE’s stock has lost none of its defensive qualities – it has outperformed the FTSE all-share index by a respectable 21 per cent year-on-year – and boasts a secure and rising payout, whose returns roundly outstrip base rates. Hold on.

Dimension Data

After a profit warning from Cisco Systems last week, Dimension Data could not help but sound caution at yesterday’s full-year results.

Cisco is the biggest supplier to the South African IT reseller and when the normally upbeat American company revises its forecasts from 6 per cent growth to a 5 per cent fall in a matter of months, things are clearly awry. The other concern is that Cisco flagged a slowdown in emerging markets, from which DiData draws two thirds of profits.

But DiData is considerably more resilient than at the time of the 2001 IT downturn. The steady growth of its IT services business means that one quarter of its revenues are recurring. It also has scope to cut overheads, which rose 13 per cent last year. The problem rests with the 60 per cent of DiData’s revenues still linked to hardware sales, where margins are low. In particular, it is vulnerable to any attempts by Cisco to squeeze its suppliers by reducing rebates; the profitability of Computacenter, its rival, was shattered three years ago when Hewlett-Packard pursued a similar tactic. DiData is also exposed to the strengthening of the US dollar, a phenomenon that has meant that profit forecasts have been sharply reduced. Thus, although DiData’s results were ahead of estimates and its balance sheet boasts a comforting $400 million of cash, yesterday’s 6 per cent bounce in the shares to 31¼p, or eight times earnings, may be as good as it gets for now. Avoid.

BPP

For those who believe that there are already too many lawyers in this world, yesterday’s trading update from BPP Holdings, the small-cap education and training provider, contained some bad news: soon there will be quite a few more.

Enrolment in BPP’s full-time Graduate Diploma in Law (GDL) – the conversion course that allows nonlaw graduates to switch to law – was up 31 per cent this autumn. But those tidings should be unequivocally welcomed by BPP shareholders. First, because it brings increased certainty to the company’s medium-term revenues: most GDL candidates go on to take further postgraduate qualifications in BPP’s Law School. Secondly, because it appears to bear out the company’s claim for the counter-cyclicality of legal training, which accounts for one third of BPP’s operating profits: when times get tough, graduates choose to stay longer in education and those from outside the profession seek to retrain. Elsewhere, trends in accountancy training, BPP’s single biggest moneyspinner, remain resilient, with revenues helped by recent fee increases.

However, any comfort that BPP is on track to meet full-year profit forecasts must be mitigated by shortcomings elsewhere. Demand for the sort of short-term discretionary courses funded by investment banks has, inevitably, fallen and might be expected to stay weak. That explains why next year’s forecasts were nudged lower yesterday.

Yet at 343½p, or ten times earnings, and yielding 6.7 per cent, BPP – a constituent of the Tempus Ten – appears to be good value, given the strength of its brand, the scope to exploit recently bestowed degree-awarding powers and the undimmed potential for bid interest from an American rival. Hold.

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