Interactive Investor

Insider: Centrica bosses turn up the heat on share purchases

17th August 2020 12:54

Graeme Evans from interactive investor


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Directors of the British Gas owner have been busy snapping up shares, as have Taylor Wimpey executives. 

Centrica (LSE:CNA) shares worth almost £100,000 have been bought by the company's new management team as they begin the task of rebuilding the struggling British Gas owner.

The purchases by chairman Scott Wheway and chief executive Chris O'Shea are the first major director dealings by the pair since taking their positions in March and April respectively.

The shares were bought on Wednesday and Thursday of last week at prices of around 48p, compared with close to 30p when O'Shea was promoted to replace Iain Conn at the helm.

Their success in stemming the downward spiral for Centrica shares follows last month's bigger-than-expected £2.85 billion deal to sell North American energy supply arm Direct Energy.

The transaction was hailed by O'Shea as a fundamental step in the company's turnaround, having already announced plans to focus Centrica on domestic markets in the UK and Ireland. The proceeds will also make a significant dent in the company's debt pile of £2.8 billion, which is currently the same as the market valuation of the former FTSE 100 index stock.

For investors, the speed of change at the company under the new regime should come as some relief, particularly after such a long run of bad news. This recently included the suspension of the company's dividend at a time when other utilities such as SSE have continued to make awards despite the backdrop of Covid-19 disruption.

Shares are down 80% over the last five years, with the stock off by some 40% at one point earlier this year amid worries over how the pandemic will impact customer bad debts when Centrica is increasing its focus on residential energy accounts.

Covid-19 has also hampered the hunt for a buyer of Centrica's North Sea Spirit Energy exploration and production business, as well as its 20% stake in the UK’s nuclear energy fleet.

Operating profits were down 14% to £343 million in the first six months of the year, with the company unable to give specific guidance for the rest of 2020. However, cash flows and liquidity remain robust and have heightened the company's confidence it will be able to navigate the current crisis.

It is making 5,000 job cuts, with most expected to come from management roles after O'Shea admitted that the company's organisational structure was “getting in the way of being able to serve customers as effectively as we would want”.

His appointment as chief executive was confirmed in April after the finance director impressed Wheway during a short spell as stand-in boss. His new base salary of £775,000 comes with an obligation to build and maintain a minimum shareholding in the company equivalent to 300% of his annual pay packet over five years.

O'Shea set about reaching that target last week when he bought 100,000 shares in three separate purchases. This matched the number of shares acquired by Wheway a day earlier.

The dealings are the most significant by Centrica directors since O'Shea and Conn bought a combined £123,000 worth of stock at a price of 65p in August last year.

Another high-profile company where the chair and chief executive bought shares at the same time last week was housebuilder Taylor Wimpey (LSE:TW.).

The purchase of £750,000 worth of shares by long-time boss Pete Redfern was particularly significant, given that he sold almost two-thirds of his holding for £3.7 million in November. Redfern's boss, Irene Dorner, also bought £50,000 worth of stock on Wednesday.

She has been chair of the Taylor Wimpey board since February, having previously held senior roles at banking giant HSBC.

The pair's purchases at around 120p were half the price seen in February, although still above the 101p recorded at the height of the market sell-off in early April.

Despite a boost to housing market confidence following the Chancellor's stamp duty holiday, Taylor's shares have come under more pressure in recent weeks after half-year results revealed that 2020 completions were likely to be down 40% this year.

Redfern remains confident that the company will emerge stronger from the pandemic, citing the strength of its balance sheet, order book and growing landbank. He also bought £200,000 worth of shares in June as part of the City fundraising that saw Taylor secure £510 million towards land acquisition opportunities.

Analysts at UBS recently had a price target of 175p on Taylor shares, with their wider confidence in the sector spurred on by low interest rates and the ongoing government support for housing.

Taylor Wimpey is currently the fourth-biggest housebuilder listed on the London stock market, behind Persimmon (LSE:PSN), Barratt Developments (LSE:BDEV) and Berkeley Group (LSE:BKG). It was formed from the merger of George Wimpey and Taylor Woodrow in 2007.

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.

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