En­ergy price cap threat­ens Cen­trica’s earn­ings and div­i­dend

That’s bad news for one of the FTSE’s most pop­u­lar in­come stocks

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The Gov­ern­ment has con­firmed plans to in­tro­duce en­ergy price caps across what prime min­is­ter Theresa May has called ‘the bro­ken en­ergy market.’ The news prompted a steep de­cline in the share price of Cen­trica (CNA) which looks likely to be worst hit by an Ofgem clam­p­down. It has also called into ques­tion the group’s fu­ture div­i­dend pay­out plans, the main rea­son in­vestors hold the shares.

The stock has fallen roughly 10% to 173.9p. Cen­trica owns Bri­tish Gas, by far the big­gest sin­gle gas and elec­tric­ity sup­plier to UK homes, with es­ti­mated re­spec­tive market shares of 34% and 22%, ac­cord­ing to Ofgem data.

The price cap ‘might cost Cen­trica some­thing like £200m’ a year, cal­cu­lates Neil Wil­son, market an­a­lyst at ETX Cap­i­tal. That fig­ure chimes with pre­vi­ous es­ti­mates from in­vest­ment bank UBS of ‘a re­duc­tion of £150m to £200m per an­num or ap­prox­i­mately one-third of Cen­trica’s UK sup­ply mar­gins’.

Prof­itable stan­dard vari­able rate tar­iffs will come un­der at­tack by the en­ergy watchdog.

Like other providers Cen­trica re­lies heav­ily on these stan­dard vari­able rate tar­iffs with ‘about three­quar­ters of cus­tomers on these lu­cra­tive con­tracts,’ es­ti­mates ETX’s Wil­son.

In 2016 Cen­trica re­ported £1.47bn op­er­at­ing profit from which it paid out £533m in div­i­dends. This year the market an­tic­i­pates roughly the same div­i­dend on lower op­er­at­ing profit of £1.43bn.

Cen­trica was forced to cut its div­i­dend by 30% be­tween 2013 and 2015 to 12p per share, a level at which it has re­mained. The com­pany had hoped to re­turn to a ‘pro­gres­sive’ pay­out pol­icy going for­ward, but those plans may now have to be put on hold. (SF)

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