Shares in British Gas owner Centrica dive as firm reports 35% fall in annual profits

Otmane El Rhazi from Mindful Money » Shares.

British Gas owner Centrica has endured a steep fall in profits, as the warmer weather and the drop in the price of oil take their toll.

The FTSE 100 group reported on Thursday that its full-year profits for the 12 months ending 31 December 2014 had collapsed by 35% to £1.75bn.

Following the announcement, by 8:15am shares in the business had plummeted by some 8%, or 21.4p to 259.7p as traders off-loaded their holdings.

Notably profits in its residential division fell by 23% to £439m as the warmer climate led to less household usage.

Chief executive Iain Conn admitted that “2014 was a very difficult year” and that the recent fall in oil and gas prices creates a further challenge.

Looking to the fall in energy prices, where the price of oil has more than halved since June last year, Conn said the group is taking a number of immediate actions and “regrettably have had to take action” to cut the dividend by 30%.

He said: “We are also conducting a review of our longer term strategy, including the financial framework for the company. We will be in a position to share our conclusions by the time of the Interim Results in July 2015.

“Despite the current challenges, I am convinced that the Group is well-placed to build on its existing strengths and be able to compete and contribute materially against the emerging long term trends in global energy markets.”

Brokers call FTSE 250 support services group Interserve a ‘buy’

Otmane El Rhazi from Mindful Money » Shares.

Brokers are coming out in force to tip support services group Interserve as a ‘buy’.

The FTSE 250 constituent which provides facilities, project and equipment services to organisations such as petrochemical firms as well as the Ministry of Defence, has seen its shares more than double over the past five years and more gains are expected to come.

Presently the analyst consensus, according to broker Hargreaves Lansdown, has the stock firmly in ‘buy’ territory.

Ian Forrest, investment research analyst at The Share Centre, is also backing the group. He asserted that a recent dip in the shares, which have eased by 6% over the past three months, puts them on a relatively low valuation, providing an attractive entry point for investors.

He said: “The company is seeing strong organic growth in its support services division, has a growing order book and pays a very good dividend which is well covered. As a result we are recommending the company as a ‘buy’ for medium risk investors seeking both growth and income.”

Forrest highlighted that the group has reported that its largest acquisition last year, the £250m purchase of Initial Services, is performing well and subsequently raised the dividend by 10%. According to an update in January, ahead of full-year results later this month, trading has continued in line with expectations.

He added: “With strong earnings growth forecast for the next two years, the 2016 p/e is set to fall from 13.1 as it currently stands, to just 7.8. This figure is lower than its peers such as Carillion, WS Atkins and Kier Group. The prospective dividend yield is a very healthy 4.7%, which is well above the market average.”

AstraZeneca’s latest results fall short of expectations but investors are advised to sit tight

Otmane El Rhazi from Mindful Money » Shares.

Pharmaceutical giant AstraZeneca has narrowly missed City estimates in its fourth quarter market update as it announced revenues fell by 2% to $6.7bn, partly as a result of the appreciating US dollar.

However the core gross margin remained at a decent 80% but the group’s increased focus on R&D and marketing took costs up significantly. This resulted in core earnings per share falling by 38% to $949m. Furthermore, full year sales were up just 1% to $26bn while net profit fell by 15% to some $5.4bn.

Following the news, shares in the business fell 2% or 86p to 4,602.00 by 10:28am.

Helal Miah, investment analyst research at The Share Centre said: “The company is in a transition phase investing heavily into R&D to boost its drugs pipeline with the hope of mitigating falling sales caused by generic competition.

“While the increase is promising, this does not guarantee that sales will eventually turnaround and we believe that more evidence of progress is needed. Investors should be aware that even if there is development it will still be some years before there is a material impact on sales growth.”

Currently Miah is recommending investors sit tight and ‘hold’ their shares in the firm.

“Like most other major pharmaceuticals, the company will continue to pay a good dividend and we wouldn’t discourage investors attracted by the strong income flows. However, investors should take note that the current p/e ratio of 17x leads us to prefer GSK, which trades at lower multiples. We expect to see results much sooner from GSK, courtesy of investment in R&D being made much earlier,” he added.