The owner of the largest energy supplier of Britain may need to raid the payouts of its shareholders to endure a tougher-than-expected government crackdown on increasing energy bills.
The emerging energy price cap is expected to decrease the earnings of British Gas three times deeper than what investors initially feared, which may push its parent company to lessen shareholder dividends by a quarter and could also endanger Centrica to the threat of a takeover.
The abrupt warning from analysts and City sources emerged after Theresa May, the British Prime Minister, raised the political heat on suppliers of energy with the promise to start legislation on a price cap for around 15m homes.
Roshan Patel at Investec described the plans of the Government as a “sea change in a long drawn-out saga” with “severe” financial consequences for the biggest energy suppliers.
For the British Gas’ owner, it could mean a reduction of between 20 to 25pc to shareholder payouts, which totalled to £459m in 2016, to overcome the political storm.
Meanwhile, City sources have warned that the dramatic share price plunge of the FTSE 100 group to 14-year lows is expected to reignite market gossip over the energy giant as a target of a takeover.
“A lot of the fear and disappointment in the market is already priced into Centrica’s share price but, depending on the details of the legislation, there could be further to fall,” said a City source.
In 2016, Centrica cut its progressive dividend policy to take on its excessive debt pile. It will restore growing payouts only if it succeeds to drive debts down. However, a snap dividend reduction could still be probable, as is a possible takeover of the British energy stalwart.