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Centrica’s deal to sell Direct Energy “undervalues” the North American business, a City analyst has told Utility Week.
Announcing its interim results on Friday (24 July) the British Gas owner revealed it had struck a deal with US-based NRG Energy to sell its North American retailer for $3.625 billion (£2.85 billion).
However Lakis Athanasiou, a utilities analyst at Agency Partners, believes the price reflects a lack of confidence in Centrica’s abilities to manage its overseas business.
Athanasiou said: “Centrica really did not have much of a choice, given the offer made, but to sell Direct Energy. I believe $3.6 billion undervalues the business but it is very likely to be ahead of the consensus view, roughly $2.2 billion derived from last week’s share price of 40p.
“The reasons for the low market valuation is the market has lost confidence in the company’s ability to manage these assets and is therefore valuing it on low current earnings with a low multiple.”
Centrica says the transaction will enable it to further simplify its business which, along with the recently announced restructure, will create a leaner company with a focus on its core markets of the UK and Ireland.
Covid-19, coupled with low commodity prices, had a “significant impact” on Centrica’s financial performance. The results show that operating profit for H1 2020 fell 14 per cent to £343 million (down from £399 million).
The group saw an improved statutory loss at £135 million, up 70 per cent compared to last year’s £446 million loss. Meanwhile, net cashflow more than quadrupled from £177 million to £903 million.
In addition, British Gas lost 226,000 customers.
Justin Bowden, GMB Union national secretary, said Centrica’s interim results show its plans to axe thousands of roles as a way of mitigating the financial impact the business has faced in recent years was not working.
Speaking on Friday, he said: “Today’s figures are a stark indictment of the governance of this once great British company.
“Every time a crisis looms, Centrica directors’ answer is to cut thousands more jobs. Today’s financial results prove the strategy isn’t working.
“It wasn’t loyal engineers, call centre workers or admin staff who were in charge when Centrica lost three million customers in the last five years.
“Now they’re being told they have to carry the can again and they’re not prepared to do that anymore.”
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