HSBC downgrades Centrica on likely dividend cut

HSBC's analysts downgraded multinational utility company Centrica to 'reduce' on Wednesday, saying that while its recently announced price increase would help maintain its margins, it may, in turn, precipitate further customer losses.

For the shares to rerate, HSBC believed that Centrica had to stop losing customers as the firm had been squeezed by intense competition in both its conventional supply business from players such as Engie and Shell and in its Connected Home business from Amazon and Google

HSBC said that while Centrica may well have the cash to pay its dividend in 2018, something it has been aiming to commit to at 12p for the year, its analysts believed that the market would need to see a return to customer growth in home energy as well as progress towards profitability in its connected homes and distributed energy divisions first.

"We cut our 2018e EPS by 8% and 2019e by 17%, including an increase in the SVT cap EBIT impact of £140m from £75m, previously. We assume a 25% dividend cut for 2019," HSBC stated.

In addition to the downgrade, the analysts also cut their target price on Centrica from 150p to 120p.