Interactive Investor

Centrica: when you see the dividend, tell Sid

22nd July 2021 13:26

Graeme Evans from interactive investor

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Another year without any income is a major blow for shareholders in this part of the old British Gas business.

The British Gas dividend drought continues to frustrate an army of small shareholders after parent company Centrica (LSE:CNA) today said it is still “fixing the basics” in its turnaround.

First-half results were broadly as expected, but chief executive Chris O'Shea said much more had to be done in terms of simplifying the business and strengthening the balance sheet.

That means it is too early to restore the dividend last awarded two years ago after Covid-19 forced directors to scrap plans for 3.5p a share worth £204 million in June 2020.

Retail investors, whose ownership in many cases was triggered by the Tell Sid adverts of the 1986 flotation of British Gas, had been receiving a chunky 12p a share until a cut to 5p in 2019.

Today they were given the same line as six months ago that the company recognises the importance of dividends and that they would restart “when it is prudent to do so”.

Shares have fallen as much as 80% over the last five years and had been as low as 30p at the onset of the pandemic, their lowest level since Centrica was created out of British Gas in 1997.

They recovered to 58p in May this year, only to be back at 50p for a market capitalisation of less than £3 billion, as the task facing O'Shea became clear in today's interim results. Shares were half a penny lower, but with UBS analysts holding on to a price target of 60p.

Centrica missed the City's consensus forecast for underlying earnings by 15%, with the flat result of £262 million reflecting weakness caused by volatile commodity prices affecting its division trading power across 22 European countries and gas across 15 countries.

UBS said a strong second half weighting meant the City's full-year forecasts were likely to remain unchanged, despite the first half earnings miss.

The core British Gas business saw its number of residential energy customers fall by 114,000 or 2% to 6.8 million as February's hike in Ofgem's default price cap led to an increased level of market switching. Colder weather helped the division, however, as adjusted operating profits rose 121% to £172 million in the six months.

The number of customers using British Gas services fell by 4% to 3.4 million after a combination of Covid-19 and industrial action reduced appointment availability and led to higher job reschedule levels. Operating profits for the division fell 36% to £60 million.

O'Shea's priorities for the second half of the year continue to be “fixing the basics”, which include a focus on improving employee relations after 5,000 roles were lost in the past year amid a drive for a more competitive cost structure.

He will also hope for progress on Centrica's exit from oil and gas production, after plans first announced in 2019 to divest of a 69% shareholding in Spirit Energy were disrupted by the pandemic and the joint venture structure.

Centrica is now pursuing alternative options, including the use of a simplified sale structure.

Its debt pile currently stands at £3 billion, having benefited in January from the sale of North American business Direct Energy for $3.6 billion (£2.5 billion).

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