UK power supplier Centrica (LSE:CNA) cancelled its 2019 dividend yesterday. It’s the latest in a slew of FTSE 350 companies to do so in response to the ongoing effects of the coronavirus pandemic. The Centrica share price has fallen nearly 50% in a month in the face of mounting adversity. The company is bracing for a reduction in earnings, as it expects customers to defer their electricity bill payments. The nationwide lockdown has also created a fall in electricity usage by businesses.
Centrica succumbs to external woes
The lockdown has also increased the number of people working from home, so there’s a marked increase in demand from residential customers. But I doubt this will do much to ease investors’ nerves.
Centrica has been struggling for a while. Its market cap has slipped from a high of £14bn in 2015 and is now worth around £5bn. Recent trading updates haven’t been encouraging. Last month the company posted a £1.1bn pre-tax loss.
The disturbingly low oil prices are not helping either. The company projects this to reduce cash flow by close to £100m. Its divestment of Spirit Energy has been put on hold and capital expenditure is being cut by £100m in response. I don’t see a bright future ahead for the Centrica share price and if I owned shares in the energy group, I think I’d sell.
FTSE 100 favourite
Considering the FTSE 100 is home to the 100 largest companies in the UK, it’s hard to believe it could contain any hidden gems. But amid a market crash and rising tension, it’s surprising which companies are standing out as long-term winners.
One that I like is Meggitt (LSE:MGGT). There are others, but I think many of them are still overpriced, despite the market crash.
Meggitt is involved in engineering for extreme environments. This includes specialising in tech for the aerospace, defence and energy sectors. Airlines and oil stocks are both suffering at the hands of coronavirus and the oil price decline. However, when the world returns to a new sense of normality, dependence on both energy and air travel will resume.
Meggitt has seen a decline in its airline component production in response to the pandemic. But is now constructing medical ventilators for the NHS, putting its expertise to good use at this terrible time.
Today Meggitt has a price-to-earnings ratio of 7 and earnings per share are 28p. It’s cancelled its final dividend for this year in a bid to increase liquidity and strengthen its financial position. While it’s never good when a FTSE 100 company cuts its dividend payments, I think the company will be well placed for rapid recovery when the time comes.
This share carries risk, but I think it offers value to long-term investors looking to buy and hold for several years.
