Centrica: Another stock that seems
to be trapped in the high yield but uncertain growth category. The company is
weather sensitive and cite mild UK conditions and the North American Polar
vortex as having being problems, as well as reduced margins at British Gas
Residential. In addition two nuclear power station outages have hit profits and
now oil and gas prices are falling. As a consequence, in this IMS, they have
reduced 2014 guidance from eps of 21p–22p to a range of 19-20p, whilst pointing
out that they still expect to see eps growth in 2015. This prediction though, is
then caveated by almost everything except Nigel Farage foreswearing public
houses. On the balance sheet, Group net debt is a manageable £5.2bn, whilst the
£420m share buyback has been completed. They re-iterate that they see real
dividend growth this year.
So with the shares at 294p, the mid-point eps guidance of 19.5p
gives a not really bargain basement PE for 2014 of 15.1x. The dividend last
year was 17p, so an RPI plus-ish 3% rise to 17.5p results in a chunky yield of almost
6%. With the balance sheet debt looking OK, such a low dividend cover for a
utility can be OK. It certainly doesn’t raise as many niggly doubts in my mind
as SSE did recently. So, for the yield hungry, the stock looks interesting, but
it just all feels rather laboured and sluggish. With so much outside management’s
control (mainly weather), visibility isn’t great. It just doesn’t look like it
is going to top your dividend growth or total return charts unless the Met
Office is wrong and it’s a freezing winter. Actually, on second thoughts...... (Neil Cumming, 20th November 2014)
These comments are not a personal recommendation to deal. Any
investments can fall as well as rise in value, so you could get back less than
you invest. I may have a financial interest in some of the stocks written
about. www.dividendpower.co.uk
or e-mail at info@dividendpower.co.uk
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