Shares in Centrica, the owner of British Gas, are taking an absolute hammering on Thursday after the company announced plans to issue around 350 million new shares, worth around £750 million — a measure designed to help cut Centrica’s massive debt pile.
Just after 9:10 a.m. BST (4:00 a.m. ET) Centrica’s stock is down more than 7%, the biggest single day fall in the stock for around 15 months. Here’s how things look:
In a statement released to the markets on Thursday morning, Centrica said:
The Placing allows acceleration of the Group’s customer-facing strategy through two prioritised and attractive acquisitions, with combined consideration of around £350m; and continued lowering of net debt, reducing pressure on the Group’s targeted strong investment grade credit ratings in a continuing uncertain environment.
Although Centrica didn’t explicitly say who the two “attractive acquisitions” are, one is highly likely to be Danish energy trader Neas Energy. Centrica struck a £170 million deal to buy Neas last month.
Centrica’s statement carries on:
Centrica’s strategy implementation remains on track, as it targets long-term shareholder value through expected returns and growth. It expects to deliver at least 3-5% sustainable adjusted operating cash flow growth per annum on average until 2020 and a targeted 10-12% return on average capital employed (ROACE) each year. In addition, the Group remains committed to delivering a progressive dividend from the current 12.0 pence per share baseline, linked to confidence in sustainable growth in adjusted operating cash flow. The Group will maintain its focus on cash flow, capital discipline and cost reduction.
However, regardless of the company’s insistence that its strategy is working, investors aren’t convinced, and have given a huge thumbs down to the issue with this morning’s rapid sell-off. The fall extends Centrica’s losses in terms of share price to nearly 38% since this time two years ago.
The rights issue comes just over two months after the firm confirmed in its annual results statement that another 3,000 roles would be axed this year, on top of 2,000 already announced. At the time, it put the cuts down to a “challenging” trading environment thanks to the fall of oil prices. The cuts are part of a £750 million package of cost-cutting to be completed by 2020.
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