Major Centrica shareholders are calling on the British energy group to restore its dividend when results are announced next week, even as households face another sharp rise in their energy bills.
The company behind British Gas, the UK’s biggest energy supplier, suspended its dividend at the height of the first wave of Covid in 2020. But it is now under pressure to resume payments to investors after racking up a net cash of £700m from divestitures such as the sale of its US operations in 2021.
“Reinstatement of the dividend is an absolute necessity as it has been a long and difficult recovery for this business for shareholders,” one of the top 10 investors told the Financial Times.
Another investor said shareholders had “long awaited the reinstatement of the dividend and, aside from this year, endured a strong share price underperformance.”
Centrica benefited from high commodity prices; it still owns gas generating assets in UK waters and a 20% stake in the current fleet of UK nuclear power stations. Its performance has improved under chief executive Chris O’Shea, who replaced Iain Conn in 2020, with its share price gaining 76% in the past year.
However, any move to reinstate a payout to investors at a time when customers are facing an acute cost of living crisis would be politically difficult.
Another shareholder said the company should be “careful with messaging, at a time when everyone’s energy bills are rising”.
Households face another painful rise in their energy costs in October, when the UK price cap – which dictates the bills of 23 million households – is set to rise another 65% to more than £3,200 a year on average . Ofgem, which sets the cap, will announce the new level in August.
Analysts expect O’Shea to restore the dividend to a “modest” level when the company reports first-half results on July 28. The average analyst forecast points to an interim dividend of 0.75 pence per share and a full-year payout. 3.3p, compared to 3.5p in 2019.
Investec analyst Martin Young forecasts adjusted operating profit of £1.3 billion for the first half, including the final contribution from Centrica’s Norwegian oil and gas assets, which were sold in May .
O’Shea has waived a £1.1m bonus payment this year. He is expected to point out next week that Centrica has around 500,000 retail investors – a legacy of when British Gas was privatized in 1986 — which would benefit from a restored dividend.
However, Simon Francis, coordinator of the End Fuel Poverty Coalition, said that while the energy market was “a complex beast”, it was not “fair” for energy companies and their investors to “profit while millions of families face a very real choice between using energy or putting food on the table.
Centrica struggled during Conn’s five-year tenure with profit warnings, massive job cuts and steep losses, after failing to stem a wave of customer defections to cheaper rivals that offered discounted offers. The company fell short of ambitious revenue targets for new products such as home appliances.
However, it has benefited from the collapse of more than 30 rival energy suppliers over the past 18 months as rivals’ cut-price deals ultimately proved unsustainable.
Centrica, which declined to comment on the possible reinstatement of the dividend, has added around 750,000 customers since the start of January 2021 by rescuing those from collapsed competitors via Ofgem’s “provider of last resort process”.