Interactive Investor

Centrica sinks to new low, Drax up 88%

22nd April 2020 15:28

Graeme Evans from interactive investor


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A six-year decline at British Gas continues, but this power station firm has rocketed since March.

Shares in Centrica (LSE:CNA) were trading below 30p today after the British Gas owner was the subject of a gloomy City warning about rising bad debts and the impact of Covid-19 on electricity demand.

The latest industry figures on UK power usage were among factors prompting Jefferies to cut its earnings forecasts for 2020 to 2022 by 30%, with the bank not expecting a resumption of dividend payments next year and only a possible 2p a share the year after. The company last month pulled the 5p dividend for 2019 trading, having only rebased it from 12p back in August.

Today’s note is the latest blow for Centrica shareholders, with the blue-chip stock down another 7% today to 29.1p, its lowest level since being created out of British Gas in 1997. The pressure is very much on new CEO Chris O'Shea, with Jefferies warning that he will need to de-lever the balance sheet by between £500 million and £1 billion for any confidence in future dividend policy.

Source: TradingView Past performance is not a guide to future performance

The bank increased its bad debt estimate for 2020 by 13% and said the latest real-time electricity index suggested consumption is down 15% on average since the lockdown on 23 March.

The Centrica slide was offset by a stronger session elsewhere for the London market, with the FTSE 100 index up 1.5% after falling sharply yesterday due to the collapse in US crude prices. 

Brent crude, the international benchmark, was still below US$20, but its recovery from last night's lows at least meant shares in Royal Dutch Shell (LSE:RDSB) and BP climbed 2%.

In contrast to Centrica, renewable power station business Drax surged by more than 11% in the FTSE 250 index. The shares have now risen almost 90% since hitting a record low a month ago.

This followed a robust trading update in which the company stuck by a previous pledge to pay a dividend of 9.5p a share worth £37 million next month.

Expectations for 2020 adjusted earnings are currently in line with consensus, which includes the potential £60 million impact from Covid-19 relating to business failures and bad debt. It added that 2020-21 earnings visibility is supported by strong contracted forward power sales.

Source: TradingView Past performance is not a guide to future performance

Lloyd's of London insurers Hiscox (LSE:HSX) and Beazley (LSE:BEZ) were also in focus after they forecast claims of up to $345 million (£280 million) to settle claims in relation to the pandemic.

Hiscox expects to pay net claims totalling up to $150 million for event cancellation and other segments including travel should disruption last for a six-month period from March. If restrictions are extended, these claims could increase by an additional $25 million.

The company believes its business interruption exposure to Covid-19 is limited in Hiscox Europe and it has negligible exposure in Hiscox USA. Shares were 3% higher at 819.2p, while Beazley was 1p higher at 367.4p after it said its early estimate of losses relating to Covid-19 was $170 million net of reinsurance.

In other Covid-19 developments, housebuilder Bellway (LSE:BWY) said its board had taken a voluntary, temporary 20% reduction in basic salary and fees covering 1 April to 31 May. This money will be donated to various charities, with the company match-funding the donations with a contribution to Cancer Research UK.

The directors of Johnson Matthey, meanwhile, will make a donation equal to 20% of their salaries and fees for at least the first quarter of 2020/21 to provide support to the company’s special fund for science education.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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