ii view: Centrica's results are grim

British Gas owner attempts to start again, but investors are not impressed. 

Half-year results

• Adjusted revenue down 2% to £13.8 billion
• Operating loss of £446 million, down from a profit of £704 million
• Adjusted basic earnings per share down 63% to 2.4p
• Interim dividend payment down 58% to 1.5p per share
• Net debt up 17% to £3.38 billion

Chief executive Iain Conn, said:

"Centrica faced an exceptionally challenging environment in the first half of 2019, which impacted earnings and cash flows. We have also regrettably had to make the decision to rebase the dividend due to our changed circumstances including the UK energy price cap and increased demands on our cash flows, including additional pension contributions. The outlook is more positive for the second half of the year and we expect this momentum to continue into 2020, while we expect to meet our cash flow and net debt targets for 2019."

ii round-up:

Centrica (LSE:CNA) is a diversified utility and energy company with operations largely in the UK, Ireland and North America.  It operates through the three divisions of Consumer, Business and Exploration and Production (E&P), supplying over 25 million customers, mainly through its British Gas brand. 

For a round-up of these half-year results and strategic review, please click here.

ii view:

A 40%-plus drop in the share price over the last year alone sets the backdrop for today's results and strategic update. 

News of a dividend cut and sale of its exploration and production business comes as no surprise. A prior dividend yield of well over 10% clearly reflected anticipation. But the size of the dividend cut and fall in earnings was bigger than expected. The share price is down over 15% in afternoon trading. 

For investors, a prospective dividend yield of over 6%, even after the cut, still looks attractive in today's ultra-low interest environment. Jettisoning the unfancied chief executive is also likely to be seen as a positive. But with the government's energy price cap still in place, increased pension contributions and a generally unpredictable business, all but the very brave will likely hang fire until we see evidence of a promised uptick in fortunes during the second half. 

Positives

• Focusing on Energy Services and Solutions and exiting other businesses
• Targeting £1 billion of cost savings 2019-2022, up by £250 million 
• New CEO may have a galvanising effect and provide renewed clarity
• Full-year adjusted earnings seen weighted to H2, providing momentum into 2020
• Target progressive dividend policy over time

Negatives

• Full-year 2019 dividend payment of 5p per share down from 12p in 2018
• Group net debt rose by 17%
• Operating cash flow fell by 32%
• Selling its Exploration and Production business leaves it less diversified
• Unseasonal weather can dent performance

The average rating of stock market analysts:

Sell