Centrica PLC (LON:CAN) expects to maintain its full year dividend but investors are cautious the energy supplier could cut payouts amid a challenging market, according to Hargreaves Lansdown.
In a trading update, the British Gas owner said it is on track to meet its targets for 2018, including an unchanged dividend of 12p.
READ: Centrica on track to meet full year targets despite hit from 'Beast from the East'
George Salmon, equity analyst at Hargreaves Lansdown, said this will “boost confidence to a degree”.
“The prospect of an 8%-plus yield will be attractive to some, but the market is wary the pressures on the group could mean a repeat of recent dividend cuts,” he said.
Like the rest of the UK’s so-called ‘big six’ energy suppliers, Centrica has had to contend with fierce competition and tighter regulation.
The government said in October it would apply a temporary price cap to all standard variable tariffs in the energy market.
Centrica said it working on the assumption that the temporary price cap will be in place by the end of 2018 but continues to believe that price controls are “not good for customers”.
“The future destiny of the share price is likely to be heavily dictated by the fate of Centrica’s dividend which may hang on planned energy price caps in the UK,” said Russ Mould, investment director at AJ Bell.
Centrica tackles competitive market
Meanwhile, tough competition saw the company lose 62,000 customer accounts in the first four months of the year, though this marked a “material slowdown” compared with the average for 2017.
In comparison, the group lost 823,000 customer accounts between June and October last year.
“It is a strange feeling for the loss of 110,000 customers to feel like a positive result. But that is probably the most interesting takeaway from energy provider Centrica’s latest trading update,” Mould said.
He added: “It has faced fierce competition from the multitude of smaller independent operators actively encouraged by UK policy on switching suppliers.”
Extreme weather a double sword for Centrica
The analyst also noted that ‘Beast from the East’, which brought over heavy snowfall and icy temperatures from Siberia to the UK and Continental Europe in February and March, acted as a double sword for Centrica.
The extreme cold meant customers cranked up their heating but it also led to an increase in call out costs resulting from boiler breakdowns.
Centrica now expects first half adjusted operating profit in its UK customer services division to be lower than the previous year.