Politics and the market | Going North

Centrica plc

Shares in the utility company Centrica (CNA) – most famous for its British Gas sales and distribution brand – struggled last week despite reconfirming its key headline targets around debt reduction and paying a notable dividend.  Some market watchers noted the company again had lost customers – albeit at a much reduced level than a year ago.  As the graphic above notes in a world of privatised utilities and greater supplier choice, even ex-public sector warhorses such as Centrica are not in the market for unprofitable customers…which should help keep their shareholders warm during even a cold winter.  As for the share price fall, the real issue – beyond a couple of niggling issues in their oil exploration and nuclear divisions – is much more political.  The current government’s price cap policy is still having the finer details worked out but – as much as the Company does know – potential impacts on profits are still as guided in previous periods.  So, little change there but given the complexities and varied scenarios around the Brexit debate, there is still some uncertainty around how any future Labour government – with its policy of nationalising companies such as Centrica – would impact.  Whilst this sorts itself out, income investors – at least – are still being rewarded.

Disclosure: the Global Dynamic Opportunities Fund has a holding in Centrica.

Chris Bailey Chief Investment Officer


Serica Energy plc: going North

We continue our series on the revival of North Sea Oil with Serica Energy, which is quoted on AIM (SQZ.L) and capitalised at £337m. It is an independent upstream oil and gas company with operations centred on the UK North Sea where it has a full range of exploration, development and productions assets. The Company is in the process of buying the Bruce, Keith and Rhum assets in the North Sea from BP and additional interests the Bruce and Keith assets from Total E&P, BHP and Marubenio which will result in the following interests – Rhum 50%, Bruce 98% and Keith 100%. Serica will pay an initial consideration and enter a profit-sharing deal with the vendors. As a result of these transactions which are scheduled to be completed this month, it will become a leading mid-tier E&P Company with significant plans for growth. Serica’s UK assets have helped to quadruple its market value in the past 12 months and this will allow the Company to develop its exploration assets. Earlier this month the papers reported that a builder and his wife, David and Debbie Hardy had hit the jackpot after investing in the company during the oil price downturn which hammered oil and gas companies in 2014 and 2015. They took their holding above 3% in April 2015 when the shares were around 4p and then above 9% in July 2016 when the stock was about 13p. After recent purchases, they now have 11.3% of the company which in total cost them around £1m but is now worth around £38m at the current price of 128p.

Robert Emmet Corporate Broking

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