When British Gas was privatised by Thatcher back in 1986, investors were enticed to buy the shares by the famous “Tell Sid” advertising campaign but, after a torrid few years for its renamed owner Centrica PLC (LON:CNA), the Sids have been penalised by a reduction in dividends.
Today, after reporting a “robust” set of 2016 results, Centrica flagged up the possibility of increased future dividend payments, but investors were disappointed that the current payout has been left unchanged at 12p a share despite the good progress.
The firm reduced its annual payout in 2015 after its core business was hit by weak energy prices, and it lowered it again last year.
In morning trading, the FTSE 100-listed group’s shares dropped by over 3%, or 7.6p at 226.1p.
Centrica said further debt reductions are needed before any dividend increases can be paid.
Debt key …
In its results statement, the group said its net debt was reduced by 27% to under £3.5bn and it expects debt levels to fall to £2.5bn-£3bn by the end of this year.
Centrica said that debt range that will allow it to raise its dividend payments.
In a note to clients, George Salmon, equity analyst at Hargreaves Lansdown said “with the group saying a resumption of dividend growth is unlikely until it has shed more of its debts, shareholders are still feeling the effects of the hangover from the decision to splurge billions on offshore exploration and production at just the wrong time.”
But he added: “In the long run, deleveraging before paying out higher dividends is no bad thing.
“In any case, after having its fingers burned offshore, Centrica has decided to focus on its customer facing operations. This means less capital will be tied up by E&P spending, so the group should be able to reduce debts below target levels soon enough.”
Progressive payouts ...
Liz Dhillon, utilities analyst, Quilter Cheviot noted: “Centrica maintained at 12.0p rather than increased to 12.2p as expected.
“However, we anticipate a progressive dividend will be restored at the end of 2017, but only if the company continues to reduce net debt to £2.5bn to £3.0bn.”
She added: “Centrica has less exposure than the regulated utilities to movements in bond markets and although the threat of UK political intervention is ongoing, we believe is more than discounted.
“The firm has reduced its exposure to volatile wholesale commodity prices by owning a greater proportion of its own energy requirement, and the continued focus on cost reduction and cash generation which is supportive of its attractive yield.”
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