Centrica share price: Analysts see dividend cut as ‘inevitable’

RBC argues that a cut to Centrica’s (LON:CNA) payout to shareholders is ‘inevitable,’ Proactive Investors reports. The comments came as the analysts double-downgraded the British Gas owner this week.

Centrica’s share price has fallen into the red in London in today’s session, having given up 1.72 percent to 136.66p as of 09:57 GMT. The stock is underperforming the broader UK market, with the benchmark FTSE 100 index having climbed marginally higher and currently standing 0.20 percent up at 7,107.47 points. The group’s shares have added more than seven percent to their value over the past year, as compared with a near one-percent loss in the Footsie.

RBC weighs in on Centrica

RBC lowered its rating on Centrica from ‘outperform’ to ‘underperform’ this week, lowering their price target on the shares from 185p to 130p. Proactive Investors quoted the analysts as commenting that while they had previously expected the British Gas owner to ‘outperform’ its sector peers, it now reckoned that the ‘harsher commodity environment’ and rising competitive and regulatory pressures will hit operating cash flow, which in turn will meant the current 12p dividend was unsustainable.

“We see most pressure on 2019, and while CNA may therefore maintain the 12p/sh for 2018, we believe the dividend will have to be reduced in due course,” RBC pointed out, adding that it assumed “an 8p/sh dividend from 2019, with a 75-percent pay-out ratio thereafter, whilst also removing the dilutive scrip dividend option”.

Other analysts on group

Citigroup reaffirmed its ‘neutral’ stance on the British Gas owner today, without specifying a price target on the shares. According to MarketBeat, the blue-chip group currently has a consensus ‘hold’ rating and an average price target of 143.75p.

Centrica is scheduled to posts its preliminary results on February 21.

As of 10:12 GMT, Friday, 08 February, Centrica PLC share price is 136.66p.