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Centrica slashes dividend

Battling the UK energy price cap amidst a whole host of other problems in the first half of 2019, the feared dividend cut has finally arrived
July 30, 2019

At this point last year, Centrica (CNA) was sitting on a £704m operating profit. Swinging to an operating loss of £446m during the first half of 2019, the group’s description of its performance as “weak” seems somewhat of an understatement. The utility recorded negative earnings due to a combination of £346m in pre-tax exceptional charges, including £257m in restructuring costs and a £39m impairment of connected home assets.

IC TIP: Sell at 80.8p

A perfect storm of problems is blamed for the dismal results – the UK energy price cap, low natural gas prices, extended nuclear power station outages and unusually warm UK and North American weather. But that is of little comfort to shareholders now forced to stomach an almost 60 per cent cut to the interim dividend and cancellation of the scrip alternative.

The group intends to exit oil and gas production alongside the previously announced departure from nuclear power, using sale proceeds to fund restructuring costs and stabilise the balance sheet. Annualised efficiencies of £1bn are being targeted for 2019-2022, expected to cost £1.25bn to deliver. Meanwhile, with the adoption of IFRS 16, net debt has spiked by 17 per cent to a staggering £3.4bn whilst net cash flow from operating activities has plummeted by 80 per cent to £177m.

Bloomberg consensus gives adjusted full-year EPS of 8.2p, rising to 10.3p in 2020.

CENTRICA (CNA)   
ORD PRICE:80.8pMARKET VALUE:£ 4.7bn
TOUCH:80.8-80.9p12-MONTH HIGH:157pLOW: 80.3p
DIVIDEND YIELD:12.3%PE RATIO:NA
NET ASSET VALUE:37p*NET DEBT:119%
Half-year to 30 JunTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201812.14154.33.6
201911.6-569-9.61.5
% change-4---58
Ex-div:10 Oct   
Payment:21 Nov   
*Includes intangible assets of £4.6bn or 78p a share