Top Centrica investors say energy group must reinstate dividend

Leading shareholders in Centrica are calling on the British energy group to reinstate its dividend when it announces results next week, even though households are facing another steep jump in their energy bills.

The company behind British Gas, the UK’s biggest energy supplier, suspended its dividend at the height of the first Covid wave in 2020. But it is now under pressure to resume payments to investors after it building up a £700mn net cash pile from disposals such as the sale of its US business in 2021.

“The reinstatement of the dividend is an absolute must because the recovery of this business has been long and hard for shareholders,” one top-10 investor told the Financial Times.

Another investor said shareholders had “waited a long time for the dividend to be restored and, aside from this year, put up with a lot of share price underperformance”.

Centrica has benefited from high commodity prices; it still owns gas production assets in UK waters and a 20 per cent stake in Britain’s current fleet of nuclear power plants. Its performance has improved under chief executive Chris O’Shea, who replaced Iain Conn in 2020, with its share price gaining 76 per cent in the past year.

However any move to reinstate a payout to investors at a time when customers are facing a sharp cost of living crisis would be politically difficult.

Another shareholder said the company would have to be “careful with the messaging, at a time when everyone’s energy bills are surging”.

Households are facing a further painful increase in their energy costs in October when Britain’s price cap — which dictates bills for 23mn households — is forecast to rise by a further 65 per cent to more than £3,200 a year on average. Ofgem, which sets the cap, will announce the new level in August.

Analysts are expecting O’Shea to reinstate the dividend at a “modest” level when the company reports first-half results on July 28. An average of analysts’ forecasts points to an interim dividend of 0.75p per share and a full-year payout of 3.3p, compared with 3.5p in 2019.

Investec analyst Martin Young is forecasting adjusted operating profit of £1.3bn for the first half, including the final contribution from Centrica’s Norwegian oil and gas assets, which were sold in May.

O’Shea this year waived a £1.1mn bonus payment. He is next week expected to highlight that Centrica has around 500,000 retail investors — a legacy of when British Gas was privatised in 1986 — who would benefit from a restored dividend.

However, Simon Francis, co-ordinator of the End Fuel Poverty Coalition, said that while the energy market was “a complex beast”, it didn’t “sit right” that energy firms and their investors “are profiting while millions of families are facing a very real choice between using energy or putting food on the table”.

Centrica struggled during Conn’s five-year tenure with profit warnings, mass job cuts and steep losses, after it failed to stem a tide of customer defections to cheaper rivals who were offering cut-price deals. The company did not meet ambitious revenue targets for new products such as devices for the home.

However it has benefited from the collapse of more than 30 rival energy suppliers in the past 18 months, as rivals’ cut-price deals ultimately proved to be 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 as it rescued those from collapsed competitors via Ofgem’s “supplier of last resort process”.

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