Here’s a share price that hasn’t been glimpsed this century: Centrica, owner of British Gas, stands below 100p. Thursday’s ex-dividend date finally pushed the stock below the round number, a level last seen in 1999 when privatised utilities were still reeling from a windfall tax imposed by fresh-faced chancellor Gordon Brown.
There are no windfall taxes in prospect today, and shadow chancellor John McDonnell’s nationalisation ambitions in the energy sector are primarily aimed elsewhere. Yet Centrica, once viewed as the UK’s domestic energy titan, now has a stock market value of a mere £6bn, the same as JD Sports, our national champion in trainers and tracksuits.
One could blame bad luck. Lower commodity prices and milder winters are unhelpful when you’re the biggest retail energy supplier. And the price cap on bills was a blow, even if it didn’t arrive out of a clear sky: the Big Six invited political intervention, even of a economically questionable form, by not competing hard enough.
But one can also point to Centrica’s strategy. Iain Conn arrived as chief executive in 2015 and declared that the future would involve “capital light” activities, such as “connected home” gadgets and “energy management” services. UBS analysts offered an alternative summary last month: “Centrica since 2016 has been chasing its own tail; managing for cash and seeking to avoid a [credit] rating downgrade.”
The downgrade arrived anyway, courtesy of S&P, and suffering shareholders must enjoy the dividend while they still can: a theoretical yield of 12.5% suggests it’s for the chop, which would surely imply the same for a chief executive who has already cut once. The debate in the City has now shifted to whether a rich oil giant may splash some loose change on buying Centrica. The 20-year low for the share price says hopes are not high.
Investors can vent their fury at Monday’s annual meeting. They should, not least because Conn was inexplicably awarded a £776,000 bonus for the year just gone. In Centrica’s beleaguered position? Really? Let chairman Charles Berry explain the logic – or, since he’s fresh in post, wisely distance himself from it.
BT dividend cut may be worth the price for the future
Most of BT’s headline-grabbing pledges to invest in its full fibre network come with an important subclause – “subject to conditions being right”. Translated, this means: only if regulator Ofcom and the government make it worthwhile to spend a sum that could eventually reach £8bn. So treat with care BT’s new and more adventurous ambition to reach 15m premises, up from 10m previously, by the mid-2020s.
The stars seems to be aligning, however, which is good news if you assume (as you should) that a pure fibre network, complete with download speeds of up to 1 gigabit per second, will eventually be essential for any digital economy. New BT chief executive Philip Jansen seems happy with the drift of Ofcom’s thinking in critical areas – how quickly BT’s Openreach division will be allowed to switch off its copper network; the premium consumers would have to pay for full fibre; and the allowed rates of return on investment. From the regulator’s point of view, it can point to competitors willing to build if BT won’t. The regulatory argy-bargy seems to be in roughly the right place.
The only victim – possibly – is BT’s dividend. It’s being held this year and next, but there are no guarantees thereafter as the investment bill ramps up. BT could increase debt, but it already has £11bn of borrowings. Or it could invest less elsewhere. But cutting, say, 20% off the dividend to find £300m a year seems the most plausible path.
Shareholders shouldn’t grumble. BT’s relations between Ofcom have been toxic at times in the past 18 months. If there’s a peace deal that allows fibre to be rolled out more rapidly at decent rates of long-term return, take it. After BT’s misadventures in Italy and elsewhere, a divi cut would be a small price to pay.
Sale of Jaguar Land Rover would cause quite the storm
There is “no truth” in the story that Peugeot firm PSA Group is in advanced talks to buy Jaguar Land Rover, says a spokesman for JLR-owner Tata. Theresa May will be hoping that denial is watertight.
In the past she’s described JLR as “one of the jewels in the crown of the British economy”, and the Coventry plant is the venue of choice for ministers wishing to pose in a hard hat while talking up the UK’s manufacturing prospects.
JLR’s management, though, has complained loudly and angrily about Brexit. A sale at this point – especially to a job-cutting French firm – would cause a storm.