Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
Settings
Settings
Dynamic quotes 
OFFON

4-Traders Homepage  >  Equities  >  London Stock Exchange  >  Centrica    CNA   GB00B033F229

CENTRICA (CNA)
Mes dernières consult.
Most popular
SummaryQuotesChartsNewsAnalysisCalendarCompanyFinancialsConsensusRevisions 
News SummaryMost relevantAll newsSector newsTweets

UK power market ripe for more mergers after SSE deal

share with twitter share with LinkedIn share with facebook
share via e-mail
0
11/08/2017 | 05:44pm CET
An SSE company logo is seen on signage outside the Pitlochry Dam hydro electric power station in Pitlochry

A deal to merge the British retail power businesses owned by SSE (>> Scottish and Southern Energy) and Germany's Innogy (>> Innogy SE) could pave the way for more industry consolidation as pressures mount on the big suppliers in an increasingly crowded market.

A deal to merge the British retail power businesses owned by SSE (>> Scottish and Southern Energy) and Germany's Innogy (>> Innogy SE) could pave the way for more industry consolidation as pressures mount on the big suppliers in an increasingly crowded market.

SSE and Innogy said on Wednesday they planned to join forces in Britain to create a company with $14 billion (£10.7 billion) in sales, which would reduce the country's "Big Six" energy providers to five if the deal is approved by competition authorities.

The new company would be the second largest player in Britain's retail power market with a 23 percent market share, behind Centrica's (>> Centrica) British Gas which has 27 percent.

Analysts and banking sources say more deals could follow as the long-standing market leaders wrestle with new rivals, low wholesale energy prices, a surge in renewable energy production and the prospect of a government cap on prices.

"The big six are losing customers at a record pace to smaller suppliers. They also face a hit from price caps. Consolidation has its appeal in this kind of environment, just look at the gambling industry's raft of deals," Neil Wilson, senior market analyst at ETX Capital, said. The so-called Big Six energy companies - British Gas, SSE, Iberdrola's (>> Iberdrola) Scottish Power, Innogy's npower, E.ON (>> E.ON) and EDF Energy (>> Electricité de France) - emerged from a series of privatisations, mergers and break-ups in the 1990s and 2000s.

"There is maybe room to be going down to four from five but certainly not beyond," a senior banking source said.

"The others may consider as an alternative to create their own brand, or they could consider listing their retail business and have it combined with a smaller company like Telecom Plus (>> Telecom plus PLC) or other smaller disruptor players to avoid the regulatory challenge that comes with consolidation," the banking source said.

Centrica and EDF Energy declined to comment. E.ON's Chief Financial Officer Marc Spieker said the company was strong enough to compete on its own in Britain and was not currently examining strategic options for the business.

Scottish Power did not immediately respond to requests for comment.

UNDER PRESSURE

Europe's biggest power firms badly need to merge, bankers say. The 12 biggest have written off more than 100 billion euros ($116 billion) of assets since 2010 by shutting or mothballing loss-making coal and gas plants, Jefferies investment bank said.

In Britain, power firms face additional regulatory pressure from the government to curb high energy bills, which have more than doubled over the last decade. Retail margins are already extremely thin and not expected to improve anytime soon.

E.ON, for example, said its profit margin in the UK supply business shrank to 2.8 percent after the first nine months of 2017 from 4.9 percent a year earlier.

New, smaller suppliers now control 20 percent of the market compared with less than 1 percent a decade ago while heavy-hitters such as Sweden's Vattenfall [VATN.UL] and France's Engie (>> Engie) also entered the UK home energy market this year.

Overall, there are about 60 energy suppliers operating in Britain at the moment.

Any consolidation in the British market would follow a similar shake-up of the German sector, which culminated in its two largest utilities, E.ON and RWE (>> RWE), both splitting their businesses in two to ensure their long-term survival.

E.ON spun off its power generation and energy trading businesses into a new company called Uniper (>> Uniper SE) while RWE put its retail power, networks and renewable energy businesses into Innogy.

Even before the British deal announced on Wednesday, analysts and bankers had said utilities were looking at merger opportunities in Europe, including the sale of RWE's 76.8 percent stake in Innogy.

E.ON is also nearing a deal to sell its remaining 46.65 percent stake in Uniper to Finland's Fortum (>> Fortum Oyj).

SSE and Innogy said they were confident the British deal would be approved by the Competition and Markets Authority (CMA), which last year found that competition was not working in some parts of the retail market.

Some analysts were not so sure, especially as British Gas and the new company to be formed from SSE and npower would have half the retail market between them.

"In light of the CMA's findings last year that competition in the domestic market is not very effective, it is unclear if the CMA will bless the deal given that HHI (market concentration index) levels will increase by 17 percent," analysts at Bernstein said.

Last month, the government asked industry regulator Ofgem to come up with price caps in what would be the biggest market intervention in 30 years, arguing this should eliminate excessive charging and increase competition.

However, some industry participants view the SSE-Innogy deal as a reaction to the prospect of the price cap and customer losses, and say that reducing the number of dominant players might hinder rather than improve competition.

"We don't see how turning the Big Six into the Big Five will help consumers. Fewer suppliers means less competition and less competition means higher prices," said Hayden Wood, co-founder of Bulb, a smaller energy supplier.

(Additional reporting by Susanna Twidale and Clara Denina in London; editing by David Clarke)

By Nina Chestney and Christoph Steitz

share with twitter share with LinkedIn share with facebook
share via e-mail
0
Latest news on CENTRICA
11/17 CENTRICA : Freed from Rough Gas Storage Commitments
11/17 German gas supplier VNG in talks to sell Norwegian energy business -sources
11/15 CENTRICA : signs up first business in Cornwall Local Energy Market trial
11/15 CENTRICA : British Gas to sell Hive smart devices in Italy through Eni
11/14 CENTRICA : Enabling a lower carbon future
11/14 CENTRICA : today announces a significant expansion of its Connected Home busines..
11/14DJCentrica, Eni Partner to Offer Connected-Home Products in Italy
11/14 CENTRICA : Expansion of Connected Home business into Italy
11/13 CENTRICA : signs up first business in Cornwall Local Energy Market trial
11/11 MCDONNELL : £37bn paid to shareholders should have been invested
More news
News from SeekingAlpha
08/01 Centrica's (CPYYF) CEO Iain Conn on Q2 2017 Results - Earnings Call Transcrip..
08/01 Centrica Plc reports 1H results
07/17 Centrica, Bayerngas Norge to Create E&P Joint Venture
06/22 Centrica (CPYYF) Investor Presentation - Slideshow
06/09 Centrica sells stake in Canadian joint venture for ~£240M
Financials ( GBP)
Sales 2017 28 064 M
EBIT 2017 1 462 M
Net income 2017 768 M
Debt 2017 2 977 M
Yield 2017 7,45%
P/E ratio 2017 11,39
P/E ratio 2018 10,14
EV / Sales 2017 0,43x
EV / Sales 2018 0,42x
Capitalization 9 132 M
Chart CENTRICA
Duration : Period :
Centrica Technical Analysis Chart | CNA | GB00B033F229 | 4-Traders
Technical analysis trends CENTRICA
Short TermMid-TermLong Term
TrendsBearishBearishBearish
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus HOLD
Number of Analysts 19
Average target price 1,97  GBP
Spread / Average Target 21%
EPS Revisions
Managers
NameTitle
Iain C. Conn Chief Executive Officer & Director
Richard Neil Haythornthwaite Chairman
Jeff Bell Group Chief Financial Officer & Director
Charles Cameron Director-Technology & Engineering
Mike Young Group Chief Information Officer
Sector and Competitors
1st jan.Capitalization (M$)
CENTRICA-30.29%12 066
ENGIE18.03%41 064
NATIONAL GRID PLC-7.23%39 489
ELECTRICITÉ DE FRANCE13.70%34 732
SEMPRA ENERGY18.75%30 006
E.ON45.94%25 369