By Susanna Twidale
LONDON (Reuters) - British Gas owner Centrica (L:CNA) shed around a fifth of its market value on Thursday after warning its 2017 earnings would be well below forecasts due to fierce competition for business customers in North America and Britain.
In a surprise trading update, Centrica said its full-year adjusted earnings per share were now forecast to be around 12.5 pence, against forecasts of 15 pence, largely due to its North American and British businesses being hit by competition and warmer than expected weather reducing power and gas demand.
Low volatility in the North American gas market had also impacted its profits, Centrica said. The division is now expected to report full year adjusted operating profit of around 80 million pounds, down from 221 million in 2016.
"The biggest problem has been in the North American business side which is supplying energy to business customers. It has been hit by a combination of strong competition, pressuring margins and low volatility which means the company hasn’t been able to make as much money from trading," Roshan Patel, an analyst at Investec, said.
Investec's rating on Centrica is currently under review, Patel said.
In the consumer market, Britain's big energy suppliers are under pressure from smaller rivals offering cheaper deals, and Centrica reported a record loss of 823,000 UK customers in the four months to the end of October as they shifted elsewhere.
However, this was unlikely to have a big impact, as the largest portion of theses were so-called collective switch, or block customers.
"The block customers are not a big loss because they wouldn't have been generating much profit," Investec's Patel said.
Centrica shares fell by more than 22 percent and were down 16 percent to 137 pence at 1214 GMT, putting them on track for their biggest-ever daily loss.
"The question now is whether this weakness will persist in to 2018, and the longer term potential impact on the dividend," analysts at Morgan Stanley (NYSE:MS) said.
Chief Executive Iain Conn told investors on a call that more details on the dividend policy would be given at Centrica's annual results in February.
The company said it now expected adjusted operating cashflow of more than 2 billion pounds, down from 2.69 billion pounds last year.
British Gas, the country's largest energy supplier, had around 14 million residential energy supply accounts in 2016 but did not give a new absolute figure in the trading update.
COLLECTIVE SHIFT
The customer losses included 650,000 customers who were on white-label fixed price and prepayment tariffs or part of a "collective switch". These involve large numbers of customers who join together to sign up for cheap deals and Conn said Centrica does not have any more of these on its books.
A collective switch with British Gas negotiated by Moneysavingexpert.com ran out in October and the consumer group negotiated a collective switch deal with EDF Energy (PA:EDF).
Of the other losses, 150,000 customers were due to more regular account switching and a result of the company's 12.5 percent rise in power prices in September, Centrica said.
Home power bills have doubled in Britain over the past decade to an average of about 1,200 pounds ($1,600) a year, leading to pressure from the British government.
Prime Minister Theresa May said in October she would impose controls to tackle "rip-off" energy prices. Centrica said on Monday it would stop offering its standard variable tariff (SVT) - the payment targeted by the government cap - to new customers from March 31. It also called on the government to phase out SVT deals altogether and prohibit so-called evergreen tariffs without an end-date, arguing that such deals reduce customer engagement.
Britain's other top energy suppliers are Iberdrola's (MC:IBE) Scottish Power, E.ON (DE:EONGn) and SSE (L:SSE) and Germany's Innogy (DE:IGY) which are planning to merge their UK retail businesses.
