British Gas owner Centrica runs out of juice at ‘fair value’

Centrica came away with one of the worst blue-chip performances of the day as holders of the British Gas owner were advised to lock in profits after recent strong gains.

Shares in the company, which have more than doubled in value over the past 12 months, have been buoyed by the spike in energy prices, increased buybacks and dividend growth.

Although the bank Morgan Stanley continues to see a strong operating environment for the business, analysts feel shares are unlikely to run further as the good news looks priced in and suggests there are few near-term catalysts that could drive a re-rating.

“We now see Centrica approaching fair value and consider it an appropriate time to trim positions and start taking profits,” they declared, while moving from “overweight” to “equal weight”.

The bank’s call to take profits came a day after analysts at Liberum instructed clients to sell their shares, highlighting “overriding concerns” about its capital allocation policy being more focused on shareholder rewards than business investment.

Although Centrica addressed the issue at its half-year results in July, Liberum’s valuation suggests the present share price is “overly optimistic with regards to the company’s long-term cash return and investment plans”. At the close the shares retreated 8½p, or 5.1 per cent, to 157¾p.

Joining Centrica on the FTSE 100 fallers’ board was Land Securities, which was among one of the many commercial property stocks to suffer a loss on the back of a bearish note from Jefferies. Its shares slipped 26p, or 4.3 per cent, to 579¼p after analysts reduced the Bluewater shopping centre owner to “underperform”.

Recent excitement about takeover interest for RS Group faded, with shares in the industrial distributor losing 23¾p, or 3.2 per cent, to 725½p, while Ocado slipped 66¾p, or 9.8 per cent, to 615p as it emerged AQR Capital Management had increased its short position in the online grocer.

The falls contributed to the FTSE 100’s decline of 32.50 points, or 0.4 per cent, to 7,593.22, while the FTSE 250 shed 116.42 points, or 0.6 per cent, to 18,220.23.

Strength among energy stocks, boosted by a rise in oil prices, helped cap losses on both indices. BP and Shell gained 7¾p, or 1.4 per cent, to 538½p and 30p, or 1.2 per cent, to £26.29½, respectively, while Harbour Energy flowed 11p, or 4.3 per cent, to 263¾p. Ceres Power Holdings, due to reveal its half-year results today, rose 11p, or 3.4 per cent, to 329½p.

Ithaca Energy was the star of the day, climbing 14½p, or 8.8 per cent, to 177¾p after regulators approved the $3.8 billion Rosebank oil and gasfield it is developing with Norway’s Equinor.

IMI took the top spot on the FTSE 100, closing up 77p, or 5.1 per cent, to £15.75 as JP Morgan said it expected few surprises at the specialist engineer’s update in November.

The market reacted positively to news that a third bidder had entered the race to buy the Pendragon car dealership. The firm, which posted higher half-year profits yesterday, confirmed last night that AutoNation, the American car dealer, had put in an offer at 32p a share, valuing it at £447 million. The shares leapt 4p, or 13.2 per cent, to settle at 34p, their dearest price in more than six years.

Down on Aim, Saietta Group reversed this week’s losses after the electric motor developer revealed its joint venture in India had bagged an order from a manufacturer of light commercial vehicles in the country. Bosses believe the deal will produce more than £11.2 million in revenues for the first year. The shares finished 8p, or 25 per cent, higher at 40p.

Alfa confirms takeover talks

An American private equity company has emerged as a potential suitor for Alfa Financial Software, months after another buyout group abandoned its proposed £614 million takeover of the British firm.

Alfa, which provides software for the asset finance industry, was chased 23p, or 13.77 per cent, higher to 190p yesterday after confirming it was in talks with Thomas H Lee Partners, based in Boston, “regarding a possible offer”.

News of the talks comes less than three months after EQT, the Swedish private equity firm that this year agreed to buy Dechra, the veterinary drugmaker, dropped plans to make a 208p-a-share offer for Alfa.

Alfa has been delivering software systems and services to the asset industry for more than 30 years and counts Santander and Mercedes-Benz among retail and wholesale clients that use its systems.

In the first six months of the year it made £16.6 million in pre-tax profits, a 20 per cent increase on the year before, as revenues grew to £52.9 million.

It listed on the London Stock Exchange at 325p a share, with a valuation of about£1 billion, in 2017.

Wall Street report

Stocks erased a midday dip caused by rising yields and a dollar in its sixth day of climbing. Energy stocks grew as crude reached nearly $94 a barrel. The Dow Jones industrial average dropped by 68.61 points, or 0.2 per cent, to close at 33,550.27.