Utilities group Centrica (CNA) has issued a rather so-so trading update to coincide with its annual shareholder meeting.
Heating dials were cranked up in UK households as the Beast from the East chilled the nation in late February and early March, which was a positive for the British Gas energy supplier.
But a high volume of boiler breakdowns left many customers unhappy and service-related complaints increased following the cold weather.
This is likely to have prompted more customers to switch to another energy provider, alongside a general trend that’s been intact for a while as a result of energy watchdog Ofgem trying to encourage consumers to shop around for a better deal.
While the loss of a further 110,000 customers in the three month period is another blow to Centrica, the company does says the pace of customer losses has slowed materially compared with the average for 2017.
Analysts at investment bank UBS say overall the latest trading update represents a ‘small positive’ for investors. That may explain the very modest share price reaction, up 0.5%, to 147.85p.
Yet it could get fiery as the company faces shareholders later today at the firm’s AGM given how Centrica has performed on the stock market.
DESPERATE SHARE PRICE PERFORMANCE
The shares are down about 30% inside the past year and have lost almost two-thirds of their value since 2013. Investors have also had to endure lower dividends, and the threat that there may be further cuts to the payout down the line.
‘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,’ says AJ Bell’s Russ Mould.
TARIFF CAPS IS THE ELEPHANT IN ROOM
Ofgem is expected to update on its price cap plans over the summer, make a decision and set the level of the tariff cap in the autumn and bring it into effect by the end of 2018.
For the time being Centrica is sticking to previous performance targets. This implies £763m of net earnings in the year to 31 December 2018, on approximately £27.2bn revenue, according to UBS forecasts. Importantly, this also includes maintaining the dividend at 12p per share.
The prospect of an 8.1% income yield will be attractive to some investors, if it can be relied on. That’s the big ‘if’, and for now the market remains wary that the pressures on the group could mean further dividend cuts.
