Dividend alarm leaves Centrica investors cold
BRITISH Gas owner Centrica is feeling the heat after a leading City broker warned its dividend was ‘hanging by a thread’.
Shares were sent sliding by the report from Jefferies, which said there was a material possibility that Centrica’s earnings would fall short of expectations and the sale of its nuclear business was critical.
Analysts predicted Centrica would make 8pc less profit per share than last year after the Government introduced an energy price cap to limit customers’ bills, and the price of commodities such as gas continued to fluctuate.
If UK power and gas prices follow the trend of oil and fall a further 20pc, Jefferies’ Ahmed Farman explained, Centrica may barely be able to afford its 12p per share dividend to investors.
In November last year Centrica also reported issues in its gas exploration and production operations, and outages at the Hunterston B and Dungeness B nuclear power stations.
Centrica has a 20pc stake in eight British nuclear power plants, and announced last summer that it planned to sell them.
Pressure is growing on chief executive Iain Conn to scramble a deal together, as Farman emphasised that Centrica needs to sell the nuclear assets for around £1bn to pull the company’s balance sheet into better shape.
Investors were clearly shaken by the warnings, as Centrica’s shares fell 4.4pc, or 6.05p, to 131.25p.
Jefferies cut its recommendation on the Centrica stock from ‘buy’ to ‘hold’, and lowered its target price to 125p.
The price of oil was chugging higher after a downhill end to 2018 as traders factored in production cuts due to come into force this month from Opec, the cartel of 14 major oil-producing countries, including Iran and Saudi Arabia.
Brent crude was up more than 2pc by the evening to $58.21 as traders hoped Opec’s cuts would boost demand for the smaller quantities of oil available.
Oil was suffering at the end of last year as investors worried a global economic slowdown and troubled relations between the US and China could weaken demand.
However, yesterday’s rise was not enough to lift major oil companies on the FTSE 100. BP closed flat at 520.8p, while
Royal Dutch Shell was 0.5pc, or 11p, down at 2389p.
The blue-chip index ended the day down 0.4pc, or 26.54 points, at 6810.88 points as cigarette companies Imperial Brands and British American Tobacco also weighed on the Footsie.
US research firm Cowen abandoned its optimistic stance on the tobacco sector, and said increased scrutiny from US regulators could cause the volume of cigarettes sold to fall by 8pc per year between 2018 and 2025.
Imps fell 5pc, or 122.5p, to 2330p, while BAT was down 4.2pc, or 108.5p, at 2474.5p.
It was a stronger day for smaller stocks. Scottish broadcaster STV soared by 8.5pc, or 29p, to 369p as it agreed a five-year partnership with Sky.
Sky customers in Scotland will be able to access regional programmes in full high definition, and can watch STV’s on-demand service through their Sky boxes for the first time. Brownfield housebuilder MJ
Gleeson was also on the rise as it said it sold 691 houses in the second half of 2018 – up 16.5pc on the same time a year before. Shares stacked up 10.9pc, or 72p, to end the day at 730p.
Investors were keen to take a punt on gaming technology company Nektan as it announced total revenue generated from customers playing on its platforms shot up by 83pc to £4.7m from October to December. Nektan itself rose 7.1pc, or 1p, to 15p.