Listen to this article
This is an experimental feature. Give us your feedback. Thank you for your feedback.
What do you think?
Centrica’s shares carry a 7.4 per cent dividend yield for a reason. Those dividends are covered only 1.4 times by earnings for a reason, too. Political unanimity in seeking to cap “rip-off” energy bills after a collapse in the oil price has halved the valuation of the British Gas owner in five years, just as its earnings have cooled by 36 per cent.
So shareholders can only have shuddered at the prime minister’s latest vow to “fix” an apparently free market. What, then, should they make of Monday’s pre-emptive tariff changes from Centrica? It is time to de-ice The Lombard Disambiguator™, and fire it up to interpret the announcement.
“Centrica proposals to reform UK Energy Market: . . . as market leader, we are announcing seven unilateral steps we will take, and proposing a further seven recommended actions for [regulator] Ofgem and the Government.”
As market leader, we need to do something before the process slides any further away from us, and our recommended action for the prime minister is to stop making populist speeches in the middle of a consultation process before Ofgem’s own recommendations come out.
“We fully recognise that the energy market can and should be improved.”
We fully recognised there was trouble brewing in 2013 when Labour leader Ed Miliband found voters warming to a price freeze.
“We believe more action is needed and are ready to play a leading role.”
We believe our recommendation to the Competition & Markets Authority 18 months ago was scrapping controversial standard variable tariffs but no one is giving us credit for it.
“Further price controls will only set this back.”
Further price controls have set Spain back €29bn, or 3 per cent of GDP. That’s the “tariff deficit”: the difference between the retail price cap and the actual energy costs. Price controls also mean all providers cluster around a capped price, reducing competition. Just look at university tuition fees!
“A temporary price cap . . . is based on the claim by the CMA that customers are losing out to the sum of £1.4bn a year . . . £1.4bn is more than the total annual profits generated by all suppliers.”
A temporary price cap would totally wipe out our margins. RBC analysts reckoned that even without the “Armageddon scenario” of a cap, our margins will trend down to the low end of our 4-6 per cent guidance, post tax.
“This has in turn created uncertainty for Centrica and our shareholders.”
This has in turn created even less reason to hold our shares. Have you seen the price?
“Centrica has already taken a number of measures . . . reducing our own costs to enable cheaper offers.”
Centrica has already taken £600m in costs out of the business since 2015, and those savings, plus higher margin home servicing revenues, could mitigate total margin compression, as long as that compression comes from our post-2013 enthusiasm for competition, not your post-election enthusiasm for intervention. Brrrr.
Glint in the iPhone
Glint of Gold was the less successful progeny of Derby-winning racehorse Mill Reef, having the misfortune to spend a career being overshadowed by Shergar, writes Kate Burgess. Glint, the fintech group of Shoreditch traders and hedgies, will be hoping for more success — and certainly seems to have a gleam in its eye.
Britain’s government abandoned gold as a way of backing its account more than 80 years ago. Now Glint has come up with a debit card offering the opportunity to pay in gold, or many other currencies, accessed via a smartphone app.
Its founders talk of a return to a golden era in money, before coins and paper. But they appear to be playing to the paranoia of bunker-dwellers who worry the world is about to go to hell in a handcart. Glint’s card is not for those who fret about cyber security, though: the company is an electronic money institution — it is not regulated as a bank able to take deposits. Its origins are firmly in the 21st century, where gold is really just another form of moolah like greenbacks and euros. See terms and conditions for fees.
And like its equine namesake, the company is likely to be overshadowed, with the runaway cryptocurrency winner, bitcoin, setting the pace.
Ich bin kein Frankfurter
Given their rarefied tastes, Goldman Sachs’ London bankers are unlikely to be relieved that website Versus.com ranks Paris and Frankfurt equally for price of a Big Mac and “possibility of drinking alcohol in public places”. They are more likely to be horrified that boss Lloyd Blankfein has said the bank will have one post-Brexit hub near all 10 of Paris’ 3-Michelin-star restaurants, and another near all none of Frankfurt’s.
Even Mr Blankfein admits “many Americans would prefer living in Paris”. Expect productivity in Goldman’s Fleet Street office to soar between now and the first quarter next year, when all the desk plans — and table plans — will need to be in place.