British Gas owner sails close to wind on dividend
Centrica faces struggle to fund investor payout after a buffeting for utilities, its own advisers warn
THE owner of Britain’s biggest energy supplier faces a white-knuckle ride this winter to defend its dividend against further threats in the wake of a financial storm for the utility industry.
Providing it can avoid any further pain, Centrica, the parent company of British Gas, will only narrowly manage to scrape together enough cash to pay its shareholders, its own financial advisers have warned.
Analysts at German investment giant UBS, which is advising Centrica on the sale of its nuclear interests, warned that a takeover bid is one of the few scenarios in which shareholders might recover value from their investment after years of plummeting share prices.
“Centrica has had another difficult year in 2018 and the strategy is now under pressure,” said Sam Arie, of UBS.
“We do believe management can – just about – meet its cash flow targets, but there is little room for anything else to go wrong and the risk of a [dividend] cut is rising,” the analyst said in an investor note.
The energy giant laid bare the increasingly competitive market for Britain’s legacy energy suppliers in a recent trading update, which revealed that it has lost two million customers in the past two years.
Competition is similarly “intense” in the US market, where it hopes to make inroads, and revenues are dwindling in its energy production business.
“On the other hand, conditions could improve if customer losses slow down after the introduction of the UK tariff cap, and there is always the possibility of a takeover bid,” Mr Arie added. The bank was hired by Centrica to help offload its 20pc stake in EDF Energy’s UK fleet of nuclear power reactors in a bid to shore up its defences against rising competition and a government crackdown on energy bills.
However, the sale plans hit a snag last month after a European court brought the UK’S cornerstone energy security scheme to an abrupt standstill, raising major concerns over power generator revenues.
Centrica’s attempt to sell off a 49pc stake in Britain’s eight nuclear power stations emerged in February this year.
However, it is likely to be delayed by legal wrangling between the Government and the European court after it ruled that it is illegal to pay power plants to guarantee that they are available over the winter months.
Government officials said they were working with the European Commission to investigate the so-called capacity market “as quickly as possible”. The process will begin in early 2019.
UBS had expected Centrica’s market value to recover to around 165p a share, but last week slashed its valuation to stand in line with its current market price of 135p.
Centrica’s share price stood at 300p a share when Iain Conn, formerly of BP, stepped into the role of chief executive in 2014.