Interactive Investor
Log in
Log in

ii view: British Gas owner Centrica prepared for tougher second half

A major energy supplier with other businesses including gas storage and production. We assess prospects for this FTSE 100 company.

19th June 2024 15:49

by Keith Bowman from interactive investor

Share on

.

AGM trading update to 4 June

  • Expects full-year adjusted earnings per share to be in line with City forecasts
  • As normal, expects profit to be strongly weighted to the first half of the financial year
  • First-half results expected 25 July

ii round-up:

Centrica (LSE:CNA) is the biggest supplier of gas and electricity to consumers and businesses across the UK under its British Gas brand. It also supplies customers in the Republic of Ireland via Bord Gáis.

Other businesses include a global energy trading business, energy storage including its offshore Rough gas storage facility, some oil and gas production assets taking in its Morecambe Bay gas field, as well as a 20% interest in the UK’s portfolio of existing nuclear power stations. 

For a round-up of this latest trading update, please click here.

ii view:

Headquartered in Berkshire, Centrica employs more than 20,000 people including 7,000 engineers. Brands supporting its core British Gas supply business include Dyno, Hive and PH Jones. Centrica Energy, encompassing its global energy trading business, generates the second biggest slug of revenues, followed by Centrica Business Solutions, its upstream business and then Bord Gáis. 

Geographically, just over four-fifths of its revenue is made in the UK, with 5% in Ireland and the balance from the rest of the world. Centrica rivals include SSE (LSE:SSE), Telecom Plus (LSE:TEP) and even oil majors such as BP (LSE:BP.) and Shell (LSE:SHEL) in relation energy trading and production. 

For investors, the weather and its unseasonal swings can cause uncertainty around customer energy demand at its supply business. Changes by the regulator can impact outcomes, with a possible pending change of UK government also raising potential for the goal posts to move, while costs generally for businesses such as wages remain elevated.

Management has previously pointed to sharply lower commodity prices and reduced volatility in lowering 2024 earnings given a return to a more normalised environment. It said: "Second half results are expected to reflect lower commodity prices and, for [Centrica Energy Storage Limited], lower seasonal gas price spreads and volatility." 

More favourably, Centrica's diversity of businesses regularly sees tough conditions for one area countered by strengths elsewhere. Strong cashflow left it with adjusted net cash of £2.7 billion as at year-end 2023, while management continues to assess and invest in energy transition opportunities such as solar farms and carbon capture.  

For now, and while political uncertainty cannot be ignored, potential for share buybacks, a forecast dividend yield in the region of 3.5% and consensus analyst fair value estimate above 170p per share all offer grounds for optimism.

Positives

  • A diversity of businesses
  • Net cash held

Negatives

  • Subject to government scrutiny 
  • Expose to energy price movements

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Related Categories

    UK sharesEurope

Get more news and expert articles direct to your inbox