Centrica Set to Storm Into FTSE 100 With UK in Energy Crisis

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(Bloomberg) — Centrica Plc is set to rejoin the FTSE 100 after a stellar run. But the limelight may be uncomfortable as the utility weighs investor calls for a long-awaited dividend against customer demands for help with soaring bills.

The shares of Britain’s biggest energy supplier have jumped 70% in the past year. It now faces a difficult balancing act: rewarding investors that stuck with it through bad times, while fighting the growing clamor in the UK for a windfall tax as consumers suffer the worst cost-of-living crisis in decades.

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“The company will make it clear that it has a duty towards all stakeholders, including its shareholders,” Jenny Ping, an analyst at Citigroup Inc., said in a note to clients. Investors “have been patiently waiting for a turnaround, in what had arguably been a very tough five+ years for the company.”

Centrica scrapped its dividend two years ago as the impact of Covid-19 rippled through the industry. It was subsequently expelled from the UK’s blue-chip stock index as forecasts for lower earnings and increased competition dragged its shares down. Since then, a new chief executive and a brutal cost-saving program — including 5,000 job cuts — have helped to reverse its fortunes.

Indicative results of the FTSE 100’s quarterly reshuffle are due after the close of trading on Tuesday. Membership is based on market capitalization, with a stock dropping out if its valuation ranks 111 or below among eligible shares. Stocks joining benefit from so-called tracker funds boosting their holdings.

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Centrica “looks certain” to be added to the index, said Russ Mould, investment director at retail investing firm AJ Bell. Its market value has grown to £5.3 billion ($6.7 billion) from £2.7 billion in 2020, Bloomberg data show, though that’s still far off its £18 billion valuation in 2013.

Booming Profits

The Windsor-based company, which is the parent of British Gas, said May 10 that it expects earnings to surge this year on the back of rising energy prices. Bumper profits for such a high-profile UK firm are likely to draw criticism from fuel poverty groups, which are dealing with an increase in calls from people worried about mounting debts.

With the British government under pressure to offer more support to struggling consumers, Chancellor of the Exchequer Rishi Sunak has ordered officials to prepare plans for a possible windfall tax on power generators, the Financial Times newspaper reported on Monday, citing people it didn’t identify. No decision on whether to impose the levy has yet been made, the FT said.

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The government had already warned it could claw back some of the profits of North Sea oil and gas firms if they failed to invest more in clean technologies. Centrica has said it doesn’t plan to fund any more gas exploration at the UK fields it operates, but is in talks about investing around £2 billion in converting the country’s Rough storage facility to hold hydrogen.

Among other companies vying for possible promotion to the FTSE 100 are manufacturers Johnson Matthey Plc and ConvaTec Group Plc, while broadcaster ITV Plc and delivery firm Royal Mail Plc are set to be demoted, Mould said by email.

Royal Mail shares have tumbled 37% over the past year as tailwinds from online shopping and Covid-test deliveries fade. ITV faces concerns around advertising revenue as the macroeconomic outlook weakens. The broadcaster has fallen about 42% in the period.

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