Centrica Slumps as Dividend Cut and CEO Leaves

Chief executive to leave FTSE 100 energy giant after reporting £446 million loss and final dividend slashed by 58%

James Gard 30 July, 2019 | 10:38AM
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British Gas

Shares in Centrica (CNA) slumped 17% after the British Gas-owner slashed its dividend 58% and said its chief executive Iain Conn will step down next year.

The company made a loss of £446 million in the most recent six months, against a profit of £704 million in the same period in 2018.

Centrica is the latest FTSE 100 company to cut its dividend, following Vodafone’s decision to reduce its payout by 40% in May. Shares in the firm are yielding more than 13% after seeing their price almost half  136p to 80p this year. When Conn started as chief executive in January 2015, Centrica’s share price was 268p. The company now expects to pay a 2019 dividend of 5p, down from 12 per share last year.

Ian Forrest, investment research analyst at The Share Centre, says the  58% dividend cut, while widely expected, was more severe than forecast and is a major blow for investors. "Given the shares have fallen by 70% since Conn took over in 2015 it is probably right to pass the reins on to someone else,” he adds.

Morningstar analyst Tancrede Fulop agrees: "We view the departure of Conn as positive for shareholders because of his negative track record, evidenced by the collapse in earnings and dividend, and poor capital allocation."

He concedes that Conn's tenure has been during an extremely challenging period for UK energy companies.

Centrica is selling off its oil and gas exploration division in a bid to focus more on the consumer side of the business; British Gas supplies electricity and gas and also provides “home services”, which includes boiler repairs, installing smart meters and Hive thermostats.

After the results, Morningstar analysts reiterated their 100p fair value estimate for Centrica shares. Tancrede Fulop argues that shares are now undervalued after this slide in the price but risks remain high. 

Fulop expects profitability to hit a low in 2019 but to recover in the coming years as the company continues to slash its operating costs. Still, long-term profits will struggle to match those before the price cap was introduced, Fulop argues. The cap was introduced in late 2018 and will run until 2023, and was aimed at saving money for the 11 million UK households on standard energy tariffs.

Centrica has been in the political firing line in recent years: the Conservative Government has introduced an energy price cap that has hurt its profits, and the company faces the threat of nationalisation under a Corbyn-led Labour Government. Conn estimated that the price cap will cost the company £300 million in lost profits in this financial year.

Centrica is held by a wide range of active and passive income funds. For example, Centrica makes up 1.8% of the Neutral-rated Majedie UK Equity Fund.



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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Centrica PLC139.70 GBX0.76Rating
Liontrust UK Equity X Acc2.27 GBP0.12Rating

About Author

James Gard

James Gard  is senior editor for Morningstar.co.uk


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