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FTSE edges higher but British Gas owner Centrica drops after £750m cash call

Discussion in 'Market News' started by Lily, May 9, 2016.

  1. Lily

    Lily Forum Member

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    Company to raise funds to reduce debt and pay for two acquisitions

    Leading shares are edging higher after their recent tumble, but the moves are not convincing.

    And British Gas owner Centrica is missing out, dropping nearly 8% to 213.5p after it announced it planned to raise around £750m with a placing of 350m shares. It said the funds would be used to cut its debt mountain and also to pay for two acquisitions, energy management group Neas for £350m and another “customer facing” business worth around £15om.

    Centrica’s two proposed acquisitions are in line with its strategy of strengthening its mid- and downstream operations. Raising a modest amount of equity to fund these acquisitions is understandable.

    Where there is some surprise with today’s announcement is with the additional £400m being raised to pay down net debt. Raising equity is an expensive way of paying down debt. Nevertheless Centrica will clearly be in a modestly stronger financial position post the placing, albeit with existing shareholders facing a near 7% dilution. Centrica’s new management have been trying to establish a reputation for tight capital management; it is difficult to say whether today’s announcement enhances or diminishes that reputation.

    In a surprise move, Centrica has today announced that it is looking to issue around 7% of its equity in a placing. It says that the strategy is on track, but this will allow it to shore up its BBB+ credit rating in the weak commodities environment, while also allowing it to pay for two acquisitions with a combined value of £350m (Neas already announced for £200m and one to be confirmed soon for £150m). Today’s move was not expected, but there does not appear to be any hidden warning in this statement, which reconfirms the guidance that was given in last month’s trading update. So overall, we still believe that Iain Conn and his team are moving Centrica in the right direction. The yield on the final dividend is 3.5% in its own right, and the share will go ex of this on 12 May (payable 23 June).

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