Interactive Investor

ii view: Centrica beats City forecasts and boosts dividend

A diverse basket of energy businesses and with a focus on shareholder returns. We assess prospects for this FTSE 100 company.

15th February 2024 16:16

Keith Bowman from interactive investor

Full-year results to 31 December

  • Adjusted operating profit down 17% to £2.75 billion
  • Adjusted net cash of £2.7 billion, up from £1.2 billion
  • Final dividend of 2.67p per share
  • Total 2023 dividend up 33% to 4p per share 

Chief executive Chris O’Shea said: “We’ve done a lot we can be proud of in 2023: we’ve paid over £1 billion in tax; we've created over 1,000 new UK-based jobs as we continue to invest in customer service; and we’ve improved security of supply through doubling the capacity of the Rough gas storage facility, through extending the life of the Morecambe Bay gas field into the 2030s, and through investing to extend the life of our nuclear power stations. 

“We are pleased to report that this strong underlying operational performance has continued into early 2024. As you would expect, sharply lower commodity prices and reduced volatility will naturally lower earnings in comparison to 2023 as we return to a more normalised environment.”

ii round-up:

British Gas owner Centrica (LSE:CNA) today detailed annual 2023 profits beating City expectations led by its commodity exposed energy production business.

Full-year adjusted profit to the end of December fell 17% year-over-year to £2.75 billion, exceeding analyst forecasts for a fall to £2.6 billion. A final dividend of 2.67p takes the total 2023 payment up a third to 4p per share. 

Shares for the FTSE 100 company rose marginally in early UK trading having come into this latest news up by just over a third during the last year. That’s better than a one-tenth fall for green energy provider SSE (LSE:SSE) and in contrast to a 5% fall for the 100 index itself over that time. 

Along with owning energy supplier British Gas, Centrica also operates other businesses such as global energy trading, logistics and storage; oil and gas production assets; and a 20% interest in the UK’s portfolio of existing nuclear power stations. 

Net cash flow of £2.8 billion from operating activities helped push group net cash to £2.7 billion, up from last year’s £1.3 billion and ahead of City forecasts of £2.3 billion. 

Centrica announced no extension of its existing £1 billion share buyback programme due to end in July, although analyst hopes persist for a possible extension come its July interim numbers. 

Capital expenditure of £415 million climbed from 2022’s £258 million, with 750MW of green energy capacity in the planning or delivery stage and up from 600MW at the prior half-year point. 

A trading update is likely to accompany its expected AGM in June. 

ii view:

Centrica brands include British Gas, Bord Gáis in the Republic of Ireland, Dyno, Hive and Spirit Energy. Servicing more than 10 million customers, it employs more than 20,000 people including 7,000 engineers. 

For investors, the weather and unseasonal swings can cause uncertainty over customer energy demand at its supply business. Changes by the regulator can impact. A price to net asset value above the three-year average may also suggest the shares are not obviously cheap, while gas and oil prices for its upstream business have proved volatile going from lows under the global pandemic to highs just after Russia’s invasion of Ukraine. 

On the upside, its diverse businesses often allow challenges in one area to be countered by strength elsewhere. Strong cashflows have boosted net cash helping its balance sheet, while management continues to assess and invest in energy transition opportunities such as solar farms and carbon capture.  

On balance, and while some caution looks sensible given a possible change of UK government, hoped-for share buybacks and a forecast dividend yield of around 3.3% should keep existing shareholders sitting tight. 

Positives

  • A diversity of businesses
  • Net cash held

Negatives

  • Subject to government scrutiny 
  • Exposure to energy price movements

The average rating of stock market analysts:

Cautious buy

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