Centrica shares down 7.5% as the number of customers dwindle

Dividend will be maintained even as company moves back towards 15-year low.

Article updated: 22 November 2018 3:00pm Author: Graham Spooner

  • The owner of British Gas lost 372,000 home energy customers in the four months to the end of October.
  • The 12 pence dividend will be maintained however.
  • We recommend Centrica as a medium risk ‘hold’ for income seeking investors.

A trading update from Centrica this morning has provoked a 7.5% tumble in the shares after the customer base continues to shrink. The owner of British Gas lost 372,000 home energy accounts in the four months to the end of October as competition in the sector rises.

There has been a trend in recent years of a move towards the ‘new energy industry’ with the rapid growth of start-up competitors such as Bulb. Recent years have seen accelerating market presence for renewable and distributed energy, driven by technology and consumer preferences. With traditional ‘old energy’ companies feeling the pressure, sector analysis from our Profit Watch UK report shows that in the 12 months from Q3 2017 to the same period 2018, there has been a 12.73% decline in profit. Though analysis of the last four years shows a modest climb in profit of 5.04%.

However, announcements from the energy regulator Ofgem suggest that the proposed energy price caps will be set to impact the sector. The support from politicians who are keen to have greater control on energy prices and to push for more competition will likely lead to a further pressure on customer numbers with the rate of loss showing no sign of improving. Centrica commented on the regulator Ofgem’s price cap which will now result in a one-off hit to operating profit in the first quarter of 2019 of around £70 million. As competition continues to intensify; the recent 12.73% decreased profit in the sector may well be setting a trend for the future of the domestic utility companies.

Nonetheless, Centrica’s CEO describes the group’s financial performance as being “resilient” despite continuing challenges. Today’s trading update reiterated that Centrica expects to hit its targets for the year and that the dividend will be maintained at 12 pence, which has been the main focus for investors.

However, the market appears to be concentrating on the negative. The group commented on two “unexpected developments” which may have a “negative impact” on its full-year results; operational issues at Spirit Energy (oil & gas energy / production), which Centrica owns 69% of, and its nuclear division.

As the shares have fallen back 7.5% this morning, pushing it back close to a 15 year low, confidence in the group and management is at a low ebb and long suffering investors now have to consider the future sustainability of the dividend and the effect of government price caps. At current levels a medium to high risk hold for income seekers only.

All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Graham Spooner portrait photo
Graham Spooner

Investment Research Analyst

Graham started out as a fully authorised dealer on the Stock Exchange trading floor and for various banks, before becoming an FCA-approved investment adviser. Now a respected voice in the media, Graham’s share tips and comments on the markets are frequently sought by the national press.