Centrica on a slow burner

BLUECHIIP

CENTRICA is the name dreamt up by some marketeer to denote the old arm of British Gas which has taken on the domestic and industrial supply business and owns the Morecambe Bay gas field, probably its most exciting asset, as well as 240 Energy Centre shops and Accord, a gas trading business.

Confusingly, it retains the British Gas brand name for promotional purposes.

What does Centrica suggest? A thrusting, focused outfit, perhaps, going about its business with a sense of purpose; or centred, classic in its cod Latinate overtone, and also central to our lives.

That, at least, is what the spin doctors devoutly hope the name conveys.

But to British Gas shareholders who took delivery of a share in Centrica in February, the reality is less compelling.

First, the bad news. Centrica is unable to pay a dividend for the foreseeable future. It still has liabilities of up to pounds 2bn on North Sea "take or pay" contracts, where it owns the gas but has been unable to sell it off - the so-called "gas bubble". And it faces competition in its domestic markets from now on. It has already lost 20 per cent of its customer base in the south west, and it is feared that about 30 per cent of domestic customers could switch to rival suppliers eventually.

Hardly a promising start. There has been much talk of takeover - perhaps more inspired by stock market operators desperate for some upside to the shares than from any real prospect of a bid. But from a valuation perspective, such issues are immaterial.

From a high of 75.5p on the day the shares were issued, they have lurched downwards, and now stand unloved at 58.5p. The future for Centrica hinges on its ability to cope with swings in gas supply and demand - the key to which in turn lies with the European interconnector pipeline. This will link the UK and northern Europe in 1998. Then, so goes the theory, Centrica can sell surplus gas abroad.

As significant, in the years ahead, will be Morecambe Bay, worth pounds 2.5bn, according to analysts. Centrica could sell participation in the field if it chose, to raise cash. The development also gives it the luxury of having complete control over its own gas needs.

At present, however, there seems little appeal in the shares if the price is much above 50p. Sid has had a raw deal. At current levels, the shares remain a sell.

RICHARD PHILLIPS

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