Centrica and Mothercare

“Hopes have been dashed that yesterday’s rally would be the start of a new recovery. The FTSE 100 was down 0.6% to 7,010 on Thursday morning amid notable weakness in utilities, telecoms and bank stocks. It is a similar story across Europe with Germany’s DAX index down 0.4%, France’s Cac 40 index down 0.5% and Spain’s IBEX 35 index falling 0.7%. “The UK stock market continues to see some very large individual share price movements upon the slightest bit of bad news, as illustrated by Centrica dropping 8% on a £70m hit to earnings from the incoming energy price cap,” says Russ Mould, Investment Director at AJ Bell.

Centrica

“Perhaps it would be better if British Gas owner Centrica just cut its dividend and got it over and done with. A 9% dividend yield suggests the market is expecting such a move at some point anyway.

“Today’s trading update, which warns of a hit to earnings and cash flow from the new energy price cap, also says the dividend will be maintained at 12p so long as it meets targets on year-end net debt and operating cash flow.

“Presumably Centrica has a good picture on where these numbers will end up, given there are only a few weeks of 2018 remaining.

“The tough competitive environment is reflected in the 372,000 customers lost in the four months to the end of October, although this is not as alarming as the 823,000 lost in the same period in 2017.

“The company has delivered some significant cost savings and appears to be keeping a lid on its borrowings, however only a return to growth would really reassure on the sustainability of the dividend.

“Centrica is somewhat unusual in the utilities space given its material oil and gas production arm. While this does provide some diversification from the consumer energy business, it also comes with its own headaches attached, such as output recently being hit by operational issues.”

Mothercare

“Mothercare has issued an ugly set of numbers with an ongoing sales decline. Chief executive Mark Newton-Jones talks about transforming Mothercare into a business that has a ‘sustainable and relevant future’.

“He sounds like a broken record as we’ve heard this countless times in the past. Mothercare feels like one of the longest ever recovery stories in the retail sector and quite frankly it is remarkable that shareholders are still being patient.

“The company blames negative press coverage for affecting its UK sales performance. A business in its situation shouldn’t go blaming others. It should really take a hard look at its proposition and question whether the service standards are good enough, the website easy to use, the prices competitive, and the entire customer experience pleasant enough.

“If it fails on any of these counts then shoppers will simply look elsewhere and Mothercare would have no-one to blame but itself.”

These articles are for information purposes only and are not a personal recommendation or advice.