Two FTSE 100 Companies CNA And GLEN, Entangled With Weak Earnings Number

Two FTSE 100 Companies CNA And GLEN, Entangled With Weak Earnings Number

Centrica Plc and Glencore Plc are two of Great Britain’s successful companies, one in commodity trading and another in energy trading, and both companies are part of the FTSE 100 index. Below is their stock price performance at the London Stock Exchange for the past year compared with the FTSE 100 index. Both the stocks, while trending the index till February 2019, have been underperforming since then.

(Source – Thompson Reuters)

Centrica Plc

Centrica Plc (CNA) is a United Kingdom-based energy utilities and trading company. It is in the business of distribution of electricity and gas in the United Kingdom, Ireland, United States of America and Canada. The company is the largest supplier of domestic gas in the United Kingdom with operations in Scotland under the brand name Scottish Gas, in England & Wales under the brand name British Gas and in Ireland, its gas supplying entity is known as Bord Gais Energy. The company is one among the largest suppliers of electricity to households in the United Kingdom, while also providing minor utility services like plumbing to its consumers.

The company was founded 22 years ago in February 1997, at Windsor, Berkshire in England. It was listed on the London stock exchange on 17 February 1997, and its stocks trade under the ticker name CNA. The stock is also one of the constituents of the FTSE 100 index.

Recent News Update

The company on 30 July 2019 came out with its first half-yearly results for the First half of 2019 ended 30 June 2019. The company has performed poorly during this period with revenues falling by 2 per cent, EBITDA falling by 19 per cent, net profit falling by 63 per cent and operating cash flow coming down by 32 per cent as compared to the same period last year. Despite the above performance, management has decided to pay a dividend of 1.5 pence per share, which is a 58 per cent reduction on what it had declared for the six-month period ended 30 June 2018.

In another development, the CEO of the Company Iain Conn, has agreed to step down from his position following the disastrous earnings performance. Iain Conn, a former BP executive, had taken up this position five years ago, however, during this period the Company lost almost three-quarters of its market value, lost about a million of its customers and made thousands of job cuts. He would be stepping down at the end of the next Annual General Meeting of the Company.

Financial Update for H1 2019 ending 30 June 2019 (£’ millions)

Source – Company result report publication for H1 2019 (period ending 30 June 2019)

For the half-year ended 30 June 2019, the company reported Adjusted revenue of £13.808 billion compared to Adjusted revenue of £14.020 billion for the half-year period ended 30 June 2018. The gross profit for the half-year ended 30 June 2019 was £1.927 billion, whereas it was £2.256 billion for the period ended 30 June 2018. The profit before tax for the half-year ended 30 June 2019 was £399 million, compared to profit before tax of £782 million for the period ended 30 June 2018. The net profit for the first half-year ended 30 June 2019 was £134 million, whereas it was a net profit of £358 million for the half-year ended 30 June 2018. The profit per share (diluted) of 2.4 pence was for the half-year period ended 30 June 2019, whereas for the half-year period ended 30 June 2018 it was 6.4 pence per share. The Company has declared a dividend of 1.5 pence per share during this period (half-year ended 30 June 2019), whereas it had declared a dividend of 3.6 pence per share for the half-year ended 30 June 2018

Share Price Performance

Daily Chart of Centrica Plc, as on 14 August 2019, before the market close (Source: Thomson Reuters)

On 14 August 2019, at the time of writing the report (before the market close, GMT 09.07 AM), CNA shares were trading on the London Stock Exchange at GBX 65.26, down by 0.15 per cent over the previous day’s closing price of GBX 65.36. The stock has a 52- week High of GBX 156.66, and a 52-week low of GBX 63.99. The total market capitalization of the Company was around £3.81 billion.

Outlook

The company’s disastrous performance since last five years warrants an urgent review of its business strategy and its style of functioning. Company CEO Iain Conn and other functionaries should have acted long ago to arrest the Company’s downward slide.

Furthermore, the impending effects of Brexit are yet to take its toll on the British consumer household segment, and companies in the utility space need to re-position themselves appropriately, or else they stand to lose a significant portion of their businesses.

Glencore Plc

Glencore Plc (GLEN) is a multinational trading company with interest in trading metals, food grains, crude oil, natural gas, coal and power generation. The Company is one of the largest companies in the world and was ranked 14th in the fortune 500 list of the world’s largest companies for the year 2018.

The Company is headquartered in Baar Switzerland and has offices in London, Rotterdam and Saint Heliers in Jersey off the coast of Normandy. The Company’s largest shareholder is the Qatar Investment Authority, the investment arm of the Qatar Government. Its shares are dual-listed on the London Stock Exchange and the Johannesburg Stock Exchange. The Company had a secondary listing on the Hong Kong stock exchange but subsequently withdrew in January 2018. The shares at the London Stock Exchange trade with the ticker name GLEN and form a part of the FTSE 100 index.

Recent news update

The Company has been through a rough patch lately with a series of mine closures in Africa and Australia. The Company on 7 August 2019 came out with its half-year financial results for the six month period ended 30 June 2019. The company’s EBITDA has come down by 32 per cent, and net profit has come down by 92 per cent, while the earning per share has come down by 89 per cent. Even the funds from operations are down by 37 per cent as compared to H1 2018. The Company attributes this performance to the weak global economic environment.

Financial Update for H1 2019 ending 30 June 2019 (US $’ millions)

Source – Company result report publication for H1 2019 (period ending 30 June 2019)

The Company for the half-year ended 30 June 2019 reported revenue of $107.098 billion compared to revenue of $108.554 billion for the half-year period ended 30 June 2018. The income before tax for the half-year ended 30 June 2019 was $519 million, whereas it was $3.718 billion for the period ended 30 June 2018. The net loss for the first half-year ended 30 June 2019 was $158 million, whereas it was a net profit of $2.574 million for the half-year ended 30 June 2018. The profit per share (diluted) of 0.02 cents was for the half-year period ended 30 June 2019, whereas for the half-year period ended 30 June 2018 it was 0.19 cents per share. The Company did not declare any dividend for the period (half-year ended 30 June 2019).

Share price performance

Daily Chart of Glencore Plc, as on 14 August 2019, before the market close (Source: Thomson Reuters)

On 14 August 2019, at the time of writing the report (before the market close, GMT 11.04 AM), GLEN shares were trading on the London Stock Exchange at GBX 232.45, down by 1.56 per cent over the previous day’s closing price of GBX 236.15. The stock has a 52- week High of GBX 343.9, and a 52-week low of GBX 220.36. The total market capitalization of the Company was around $31.98 billion.

Outlook

Commodity trading is one of those businesses which are affected the most by the economic slowdown triggered by Brexit and compounded by the trade war between the United States of America and China. Almost all metal prices except for precious metals were at their lowest point in the past year. Energy commodities like coal, crude oil and natural gas have also seen weakness on account of demand weakness in Asian countries. On the currency side, the British Pound, one of the major international currencies, is at historic low on account of balance of payment impact due to impending Brexit deadline. The above factors will continue to impact the company’s fortunes in the next financial year as well.

Internally, the company is facing challenges with its cobalt mines and copper mines. It has mothballed its cobalt mines in Congo and cut nearly 2,000 jobs there, as the current market prices of the metal do not make the operations viable at the site. The move will take off nearly 20 per cent of the metal’s supply from the global market. Similar is the case with some of its mines producing copper and coal. The company, though on its part, is trying hard to cut non-core operational and nonoperational costs so that critical operations are not affected. The global economic events of the next year will determine the company’s future for the foreseeable period.

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