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Centrica bucks falling FTSE despite dividend cut

British Gas owner rises to top of falling FTSE 100 as investors welcome cost-cutting plans and shrug off dividend dip.

 
Centrica bucks falling FTSE despite dividend cut

Centrica has risen to the top of a falling FTSE 100 as investors welcomed the British Gas owner's cost-cutting plans and shrugged off a cut to the dividend.

Centrica (CNA) was the biggest riser on the index, up 4% at 201.8p, as the FTSE 100 fell 33 points, or 0.5%, to 5,997. The utility company reported a 4% fall in earnings and said it would reduce investment in its oil and gas exploration and production unit to £500 million, from £700 million last year.

Centrica has proposed a 8.34p final dividend payment for 2015, up slightly from 2014's 8.4p final dividend but resulting in a full-year payment of 12p, down from 13.5p in 2014. That 13.5p payment was itself a cut from 2013's 17p full-year dividend, as Centrica battled against energy price falls.

The latest cut to the dividend is in line with guidance and Centrica said the payment was now covered 1.4 times. 'We remain confident we can deliver at least 3-5% per annum operating cash flow growth at flat real commodity prices and are committed to delivering a progressive dividend in line with the sustainable operating cash flow growth of the group,' said chief executive Ian Conn.

Jefferies analyst Peter Atherton retained his 'buy' rating on the stock following the news. 'The key takeaway from the 2015 results is that the dividend will remain covered by operating cash flow even at current low commodity prices,' he said.

'The main threat to this remains the outcome of the ongoing Competition and Markets Authority energy market investigation, with provisional results in March 2016.'

Steve Clayton, head of equity research at Hargreaves Lansdown, said the results were 'reassuring in the circumstances'. 'The turnaround plan is designed to improve returns on capital employed and cash flow and make the group less susceptible to volatile commodity prices,' he said.

'Investment in the upstream business will be significantly cut back, non-core assets will be sold, costs will be slashed, and Centrica will refocus on its downstream customer-facing operations.'

The FTSE 100 was weighed down by miners, which gave up some of their gains from a breakneck rally over the last month.

Anglo American (AAL) fell 5.5% to 442.3p, Rio Tinto (RIO) dropped 3.4% to £18.85 and Glencore (GLEN) was down 1.8% at 117.8p.

Shell (RDSb) was also a faller, down 2.2% at £16.00 as the stock went ex-dividend.

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