Accountancy firm EY, which compiles the quarterly data on warnings John refers to, says the elevated level of warnings is surprising given already lowered expectations, and suggests that uncertainty surrounding the EU referendum on 23 June could be finding its way into business confidence and investment. We’ll be giving our view on the implications of Brexit next week, but the sooner the current scaremongering by both camps is out of the way, the better – we aim to offer a more dispassionate fact-based analysis that gets to the nub of what the outcome could mean for investors.
My own headwind this week did not come in the form of a profit warning but an unexpected fundraising from energy giant Centrica, whose shares I own and which fell a whopping 11 per cent in response to the news that it would be raising £700m via an institutional placing. To say I was unimpressed is an understatement. Without as much as a by-your-leave my shareholding was diluted by around 7 per cent, with a few extra per cent of shareholder value destroyed by the market’s unfavourable verdict.
Given the scale of the dilutive effect and the discount I understand was offered to institutions, surely a rights issue would have been much more appropriate. I would expect that of any listed business, but especially of Centrica whose shares, emerging from the great privatisations of the 1980s, will be owned by countless households. It feels like yet another poke in the eye for private shareholders.
Many Centrica shareholders will, like me, buy their energy from it too, and may also be feeling rather shabbily treated as customers. Perhaps it is time to switch supplier, as 224,000 other former customers did in the last quarter. Certainly the poor performance of its domestic supply business is compounding upstream production issues caused by a falling oil price, which in turn threatens Centrica’s credit rating – protecting which was presented as the primary reason for the quick-fire fundraising, and is perhaps why a rights issue was out of the question. That worries me, because it suggests that management is on the back foot, when previously they'd given the impression that January’s 11 per cent dividend cut would be the last pain long-suffering shareholders could expect.
So should I be switching out of the shares, too? Our sector specialist – to whom I defer in these matters - thinks Centrica is still a recovery waiting to happen, and I’m hanging on for now. But I am losing patience.
