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Superdry & Centrica - stirring the pot ahead of 2019

By Chris Bailey | Monday 24 December 2018

Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Well I did say to get the popcorn out on Superdry (SDRY) and the excitements continue with weekend reports observing that Julian Dunkerton - the 18% shareholding co-founder of the 'faux-Japanese' clothing retailer - is preparing to launch a proxy battle against the board in an attempt to secure a return to the company…

Apparently taking the company private is low on his priorities, so rather than buy the shares I would double the popcorn order and settle in for a long debate about brand, range, the incompetence of professional managers, weather impact and the like. Massive navel gazing at a time of extreme retail competition is rarely a good look. By contrast I think another story that broke over the last few days, involving UK utility behemoth Centrica (CNA), has much greater interest to potential or current shareholders.

News that Centrica is to make a legal challenge to the UK government's price cap sounds like a spoilsport strategy but it will not impact in any way the implementation of this crazy policy on 1 January (which will apply to default tariffs and prevent energy suppliers from charging more than £1,137 for typical duel fuel customers from the start of next year).

Price caps very, very rarely work as multiple right-thinking economists since Adam Smith have pointed out. They lead to warped markets and worse outcomes for consumers, a point Centrica has repeatedly made in recent months. And it is not alone in this view. Last week I wrote about the failed SSE (SSE) deal, which fell apart for a number of reasons including challenges around the price cap. All this price cap will do is deepen the reluctance for utility corporations to invest in UK gas and electricity supply networks. And if you build up sufficient of a disincentive...then ultimately hello brownouts and blackouts.

It clearly will not get to this. The price cap is due to be reviewed in February and April and this is what this game is all about. As shown by the Brexit negotiations, this is a government not unused to changing its mind. Watch for some fade in the price cap policy...and for some subsequent performance in Centrica's shares in 2019 which will attract even capital growth investors. Buying Centrica shares here is not just a Christmas present strategy for dividend muncher investors wanting that above 8% dividend yield.

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