Centrica shares tumble this week despite signing EV development deal with Lotus

The British energy company saw its shares slide this week despite announcing a joint venture with the Norfolk-based car maker to develop a new model for electric vehicle ownership.

Centrica has seen its shares slide 8% this week, with its newly signed partnership with Norfolk-based car maker Lotus unable to lift investor sentiment amid the Covid-19 crisis.

The partnership will see Centrica and Lotus develop a new model for electric vehicle (EV) ownership, with the pair looking to ‘redefine the customer relationship with cars’.

‘We see a future where the customer, car and home are connected, enabling new services beyond charging the car and new products and experiences replacing the unremarkable standard relationship with energy and the ownership of a car today,’ Centrica Innovations vice-president Carl Bayliss said.

Centrica has increased its activity within the electric vehicle space, with the company partnering with Volkswagen via its British Gas division to install home charging stations and provide aftersales service.

Centrica managed to claw back some of its losses on Friday, closing 2% higher to end the week at 36p per share.

Analysts downgrade Centrica amid Covid-19 headwinds

Analysts are pessimistic about Centrica’s prospects in 2020, with demand for energy among businesses falling sharply amid the Covid-19 crisis.

Jefferies analysts downgraded the ailing energy provider in April to ‘hold’ and cut their price target for the stock from 50p to 29p per share.

‘Our extensive assessment of Centrica's historical working capital and bad debt trends suggest that material headwinds are ahead,’ Jefferies analyst Ahmed Farman said in a note.

‘We also expect no DPS payment for FY20. Centrica may hang onto its Baa2 rating for now, but we see limited support for the rating under a more protracted crisis,’ he added.

Due to the challenging market conditions Centrica opted to cancel its dividend to shareholders in 2020 in a bid to shore up its balance sheet, which from a liquidity standpoint remains healthy.

Last month, Centrica opted to delay its planned sale of its Spirit Energy business to offset the impact of rising bad debts and weak energy demand.

But with the company in need of additional funds amid the pandemic, Jeffereies said that Centrica may consider selling its North American energy supply business.

How much does it cost to buy UK shares with IG?

There are three ways to ‘buy’ UK shares with IG: spread betting, trading CFDs or buying physical shares. The cost will depend on which method you choose. The table below illustrates how the costs to get exposure to £10,000 of Lloyds stock, which is equivalent to 16,000 shares (quoted at 62.5p a share).

Remember, spread bets and CFDs are derivatives, which come with higher risk and reward than investing.

Cost to get exposure to Lloyds stock

Spread betting CFD trading Share dealing
Action Buy £160 per point Buy 16,000 share CFDs Buy 16,000 shares
Capital required to open £2000 £2000 £10,000
Total fees £20.88 £20.88 £16

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Note: Amounts do not include overnight funding charges and taxes. Spread bets are not subject to tax. CFDs are free from stamp duty, but subject to capital gains tax. Share dealing is subject to both stamp duty and capital gains tax.

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