It’s no coincidence that profit warnings or dividend cuts often swiftly follow the arrival of a new chief executive. Yet Iain Conn, the new chief executive of Centrica, managed to surpass the City’s expectations as he threw in everything but the kitchen sink.
Analysts had assumed that last year’s dividend was safe, expecting the former BP executive to take the unusual step of signalling a likely cut this year instead. Yesterday he decided not to wait, opting to “rebase” last year’s payout by 30 per cent to head off a credit rating downgrade.
It is the first time that the dividend has been cut in Centrica’s 18-year history and the full year payout of 13.5p for last year is the lowest since 2009. Centrica had offered a standout yield of 6.1 per cent among utilities. In one fell swoop, the yield has fallen to about 4.2 per cent for this year to practically the bottom of the heap in the sector. No wonder shares fell by more than 8 per cent.
The company claimed that the cut was a one-off and that shareholders could still rely on the dividend to rise in future. Reading last year’s results, the 650,000 retail investors, many of whom bought shares in the “Tell Sid” campaign when British Gas was privatised, won’t be too confident.
Centrica is being squeezed on every front — by lower global oil and gas prices, UK power prices and household supply margins. Even the British weather is conspiring against the company, with the mild winter sapping gas consumption.
The company admitted that earnings this year would be 2.5p a share lower than its previous guidance last November and even lower than in 2014.
Mr Conn made another move typical of a new chief executive, announcing a strategic review that reports in July. Investors shouldn’t hold their breath, however. British Gas won’t be sold, and an exit from the United States seems unlikely.
With the Competition and Markets Authority not reporting its final conclusions until the end of the year, Mr Conn has limited room for manoeuvre and dramatic changes should not be expected.
The only factor counting in shareholders’ favour is that new chief executives tend to exaggerate the bad news when they start so they can claim credit when the situation improves.
Revenue £29.4bn
Debt £5.2bn
My advice Hold
Why Things look grim and the dividend cut took the market by surprise, but new CEOs tend to overstate bad news, while oil prices are rising
Amid the excitement over Rexam’s recommended £4.4 billion takeover by Ball Corporation, of the United States, it was easy not to notice that the world’s second-largest can manufacturer also published full-year results.
Pretty good they were, too, in a tough market when aluminium costs are rising at an “unprecedented” rate and competition is fierce.
The company, whose biggest clients include PepsiCo, Coca-Cola and Heineken, posted £3.83 billion of sales last year, up 4 per cent on an underlying basis, while pre-tax profit rose by 2 per cent to £418 million.
Drinks-can volumes were up by 4 per cent and return on capital employed was 14.9 per cent. The company has £225 million free cashflow and returned £450 million to shareholders last year, after the sale of its healthcare business.
Investors will receive a final dividend of 11.9p on top of the bid proceeds. Ball has offered shareholders an aggregate 628p a share offer, made up of 407p in cash the remainder in new Ball shares in a takeover that will be carried out through a scheme of arrangement.
With Rexam shares having risen from 447½p on February 5, when it first confirmed Ball’s approach, to 569½p, there appears to be scope for a quick profit. There is a high degree of regulatory risk, however, and Rexam and Ball could have to sell assets generating about £1.5 billion of sales to satisfy competition authorities.
If the takeover fizzles out, Rexam shares could fall hard, and even the £300 million or so break fee may not be enough to soften the blow.
Sales £3.83bn
EPS 17.7p
My advice Avoid
Why The regulatory risks outweigh the attractions
Things were simpler in the Cold War. You knew who your enemy was and where to stick your subs and fighters. In this era of hybrid warfare in which you are mining data to find out who your enemy is, the old hardware is not necessarily the answer.
Yet though the global economy is stalling and arms spending is not a priority, Ian King, who as BAE’s chief executive is the head of Britain’s biggest builder of killing machines and effective custodian of UK national security, argues that it is a brave politician who will sanction further cuts in defence capability and a bold analyst who does not believe that spending is coming back in the UK and the United States.
Most BAE metrics — sales, profit, backlog — are down year on year but £40 billion of future work and 38p per share of earnings still show a business with a future. The one line that is up is the dividend — 2 per cent better at 20.5p, which means that BAE remains something of a yield stock, offering 4 per cent. The shares are trading at 14 times earnings. Low for a technology company, high for an engineer, but with the stock close to long-time highs it is plenty in an uncertain world.
Sales £16.6bn
Ebitda £1.7bn
My advice Keep holding
Why Past its worst times, but that is already in the price
And finally . . .
The decision by 888 Holdings’ biggest shareholder to rebuff an apparently generous offer from William Hill has thrust the online gambling spotlight back on the search for a suitor by Bwin.party digital entertainment. Yesterday, Bwin announced two long-promised non-executive board appointments, one of whom, Barry Gibson, the former Littlewoods chief executive, has previously been a non-executive director at William Hill and Playtech. Both of which are among the mooted suitors for Bwin.
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