Centrica, Land Securities, Bunzl, Saga and an oil rally

Lots happening as usual, and it’s no surprise to hear more bad news for income investors.

No dividend for Centrica (LSE:CNA) army of “Tell Sid” shareholders and dependable Bunzl (LSE:BNZL) ending a 27-year run of pay-out growth showed again today just what unprecedented times we are in.

Investors are now used to expecting the unexpected, with this morning's announcements even triggering a 4% slide for shares in safe haven National Grid (LSE:NG.) after it said coronavirus was causing delays and disruption to its capital programme. Other notable statements included dividend withdrawals by property group Land Securities (LSE:LAND) and over 50s travel group Saga (LSE:SAGA), with the latter's shares continuing to set new lows after falling another 6% today.

There was at least some better news from the energy sector, with a bounce in the oil price lifting Royal Dutch Shell (LSE:RDSB) and BP (LSE:BP.) shares by 9% and 6% respectively, and helping Cairn Energy (LSE:CNE), Wood Group (LSE:WG.) and a host of oil minnows to enjoy a much-needed boost.

The fact that Centrica won't be paying its 5p dividend for 2019 trading is another huge blow for retail investors, particularly as other widely-held stocks such as Lloyds Banking Group (LSE:LLOY) have also axed their awards. To make matters worse, the British Gas owner's shares are at a record low of just 34p following a further 8% fall today.

Few could have imagined that just eight months after Centrica bowed to the inevitable by rebasing its dividend from 12p, things would end up being quite this bad. Its valuation has halved again to less than £2 billion, with many of the key planks of former CEO Iain Conn's restructuring plan now up in the air due to the disruption caused by coronavirus.

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The disposal of its 69% stake in upstream business Spirit Energy has been put on hold until market conditions improve, while its services business has paused all non-essential customer visits and business energy demand is down significantly due to the lockdown.

Analysts at UBS had a target price of 105p but that's now under review. They said:

“In light of recent events the transformation thesis for Centrica looks very difficult to execute in 2020 and there are new, significant risks to underlying forecasts.”

They noted that the dividend removal and other measures on staff bonuses may pave the way for the company to follow other sectors in seeking support from the government.

The news from Bunzl will also be a blow for many retail portfolios, given the company's buy-and-hold reputation built on a progressive dividend and solid growth record.

The global distributor of non-food consumables saw a strong performance in the quarter just ended, but it is braced for a significant impact from the economic shutdown affecting the foodservice and non-food retail sectors, which together account for 40% of revenues.

While Bunzl boasts a strong balance sheet and significant headroom, it said it was prudent to pause all M&A activity and withdraw the dividend proposed for its 15 April AGM.

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Bunzl may still consider an interim dividend in relation to 2019 trading when it has a clearer view of the coronavirus impact. Shares fell 2% to 1,531p, which is their lowest level since 2014.

Land Securities also highlighted the impact of coronavirus when the commercial property owner said it had received just 65% of “quarter day” rent by the end of 31 March, compared with 96% for the equivalent period last year. It has responded by setting up an £80 million support fund to provide rent relief to those of its customers most in need of help.

It said it was prudent to not pay the interim dividend due next Thursday, although interim CEO Martin Greenslade said the company was in a robust financial position with £1.2 billion of cash and no debt or bank facilities maturing before September 2023.

Based on 2019 valuations, the company can withstand a valuation fall of 62% or earnings reduction of £385 million before its covenants prevent further bank drawings.

Saga's decision to suspend its dividend comes after it modelled for an extended suspension of cruise and tour operations, including full cancellation of all travel departures over six months followed by a slow recovery. Other action to protect its balance sheet and increase near-term liquidity includes a “precautionary” £50 million draw down of its revolving credit facility.

It has agreed temporary amendments to its debt covenants, with “a range of further mitigating actions” still at its disposal. CEO Euan Sutherland said changes made to the business last year had also helped to strengthen the financial position.

He added:

“Against the backdrop of Covid-19, the outlook is uncertain, but we remain confident that the Saga brand, and our insurance and travel businesses have a successful future ahead."