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Centrica shares drop after surprise sale announced

Published 05/05/2016

The announcement that part of the sale would allow Centrica to pay down debt was met with surprise by some City analysts
The announcement that part of the sale would allow Centrica to pay down debt was met with surprise by some City analysts

Shares in British Gas parent Centrica dived today after the utilities firm announced a surprise share sale to raise funds.

It said it would sell 350 million shares, worth between £750 million to £800 million, to buy a pair of smaller rivals and cut debt.

The gas and electricity supplier said the move is part of its turnaround plan and would help it fund two "attractive acquisitions" worth around £350 million.

However, shares fell by as much as 10%, the firm's biggest one-day fall in 15 months, as investors took flight on the back of the share sale.

Last month it struck a deal to buy Danish energy management firm Neas Energy for the equivalent of £170 million, plus around £30 million in working capital.

Centrica added it is close to completing another "customer-facing" acquisition, which is expected to cost £150 million.

The group added that the rest of the cash raised by the share sale will be used to help pay off debt.

The supplier has seen its share price come under pressure over the last two years as weak oil and energy prices have weighed down on its stock.

British Gas has cut prices three times since the beginning of 2015, and in January it lowered gas tariffs in line with other Big Six providers, announcing a 5.1% decrease from March 16.

The UK's Big Six providers - British Gas, SSE, npower, ScottishPower, EDF and E.ON - account for 85% of all energy accounts.

However, last month British Gas lost almost 250,000 customers in the first three months of the year as customers switch from Big Six providers to smaller suppliers. The UK has a total of just under 40 energy suppliers as new rivals have entered the market in recent years.

Chief executive Iain Conn last July announced a plan to move resources away from exploration and production, as well as a five-year plan to cut costs by £750 million.

The move includes cutting 6,000 posts over the period - around 10% of its workforce - although 2,000 jobs will be created, so the net loss will be 4,000.

Centrica said its turnaround plan remains "on track".

Analysts at Jefferies said the two acquisitions were in line with its strategy, but added that raising around £400 million to pay off debt had caused "some surprise".

Jefferies added: "Raising equity is an expensive way of paying down debt.

"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."

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