Friday tips round-up: Centrica, Rexam

20th Feb 2015 17:43

In an unexpected move, Centrica's new chief, Iain Coon, decided to cut the dividend pay-out for the first time in the company's history. It was reduced by 30% to its lowest since 2009. At approximately 4.2%, and down from 6.1%, the company's dividend yield is now almost the worst in the sector. That explains the sharp fall in the share price on the back of the announcement. The firm reassured investors the dividend will rise again in the future, but after reading last year's results its base of retail shareholders will be none too confident.The energy outfit is being battered on several fronts, including lower global oil and gas prices, UK power prices and household supply margins. To that one must add the mild winter weather in Britain; hence management's decision to cut their profit guidance for this year. Centrica has put in motion a strategic review which is due to report in July. However, with the Competition and Markets Authority not expected to report its final conclusions until the end of the year, Conn has scant room for manoeuvre to deliver changes. Nonetheless, new company bosses have a tendency to exaggerate bad news and oil prices are rising. So hold, says The Times's Tempus.Lost in the excitement surrounding news that can-maker Rexam had recommended the acquisition offer from US rival Ball Corporation were the firm's solid full-year results. Despite the "unprecedented" increase in aluminium costs and fierce competition, the company registered a 4% rise in drinks-can volumes and achieved a return on capital employed of 14.9%, generating £225m in free cash-flow.Its American rival has offered an aggregate amount of 628p per share and the stock had risen to 569.5p, so there appears to be scope for a quick profit. But there is a high degree of regulatory risk remaining. Ball and Rexam may also be asked to sell assets generating turnover of £1.5bn to satisfy the competition authorities. Therefore, should the takeover fizzle out the stock could get hammered. Avoid, says Tempus.