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 Sunday Telegraph - Money & Business - - Business - By Jil­lian Am­brose

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.

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