Sid should hold on to his BG shares; The Investment Column
Friday 20 June 1997
As recently as February, when the old British Gas split into BG and Centrica, the management warned the dividend could be wiped out if the company "lost" in the MMC report. Yet when the details finally emerged the shares went up. Yesterday they slipped just 0.5p to 218.5p.
For Sid this is apparently no longer the "biggest smash and grab raid ever" that was originally billed, despite the fact that the headline price formula seems worse than Ofgas's final proposals. Bizarrely, City analysts were yesterday actually raising their dividend forecasts for BG as it emerged that the company had won some important concessions.
On the face of it the statistics are grim. The MMC said BG's assets, including pipelines and buildings, were worth pounds 11.6bn, rather than the pounds 17bn in the group's accounts, on which it can earn a 7 per cent rate of return each year. By the stroke of an accountant's pen, the company will change its accounting policy and write-off no less than pounds 5bn from shareholders' funds.
The trick for BG is that by writing down its assets, the annual depreciation charge drops by around pounds 300m. Of course at the same time the MMC has cut its revenues by some pounds 380m a year, reflecting the pounds 29 cut in average gas bills for domestic customers this year. But putting the two together leaves the reduction in BG's profits at a more manageable pounds 100m, on paper at least.
Better still for BG was that while the public scaremongering was going on, the underlying performance of Transco, the pipeline division, was improving all the time that the MMC probe continued. BG said that 10,000 jobs could go if Ofgas won, yet 4,500 staff had already left the company when the report was published, boosting productivity.
It also revealed that there is pounds 285m in revenues to carry forward to this year from undercharging in the prior year, all of which will reduce the 21 per cent price cut forced on BG by the MMC to a 5 per cent revenue reduction in the current period.
The biggest relief for Sid is that BG will pay a dividend when it reports its results in September. It may not be the 14.5p paid during the last year of British Gas as a combined group, but it is likely to be around 8p - enough to yield a very reasonable 4.6 per cent and much better than the zero some gloomsters were predicting. That suggests Sid would not be wrong to keep on holding the shares.
- 1 Venezuela Expo Tattoo 2015: Extreme body art from 'Vampire Woman' to 109mm earlobes
- 3 Ball pool for adults opens in London
- 4 Amal Clooney gives excellent response to fashion question at European Court of Human Rights
- 5 Canadian woman suing police who locked her in van with sex offender who then raped her
Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
Putin opponent reveals Russian President's daughter's secret identity
Ball pool for adults opens in London
Gay couple buy JebBushForPresident.com web domain, and refuse to sell
Canadian woman suing police who locked her in van with sex offender who then raped her
9 reasons Greece's experiment with the radical left is doomed to failure
Have we reached 'peak food'? Shortages loom as global production rates slow
Greece elections: Syriza and EU on collision course after election win for left-wing party
Stephen Fry explains what he would say if he was 'confronted by God'
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
iJobs Money & Business
£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...
£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...
£13000 per annum: Recruitment Genius: This Pension Specialist was established ...
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...