Centrica's first-half revenue rose 60% to £16.5bn, due to higher energy prices.
Helped by a strong performance from the British Gas Energy division, underlying operating profit was £2.1bn compared to £857m last year, excluding the sale of Spirit Energy assets.
Free cash flow more than doubled to £1.4bn, thanks to the increased profits. The underlying net cash position rose from £1.2bn to £3.1bn in the six months to June 30.
Most of the tailwinds have been felt already due to the impact of the price cap and seasonality, so Centrica expects lower underlying profits in the second half.
An interim dividend of 1.33p per share has been proposed, up 33%.
The existing share buyback program has been extended by £450m to £1.0bn, and is set to be completed over the next 12 months.
The shares rose 4.5% following the announcement.
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Our view
British Gas owner Centrica's turnaround is well advanced.
The British Gas Energy (BGE) division has helped to fuel a strong performance across the first half of the year, thanks to increased allowances in the UK price cap. This allowed a significant one-off recovery of costs from prior periods, providing a boost of around £500m to underlying operating profits. The majority of these tailwinds should have been felt by now, and over the medium term, profits in this division are expected to moderate to around £150-250m per year.
The Energy Marketing & Trading (EM&T) remains a star money-maker for now, bringing in £384m in the half year. The EM&T division is the trading arm of Centrica, which can benefit from energy price volatility. It also buys and stores gas when prices are low, then waits for higher prices to generate and sell power back to the market, profiting on the difference.
The Upstream division is responsible for the production of oil as well as the sale of power from its UK nuclear plants. Both divisions enjoyed bumper underlying performances in the first half, selling greater volumes against a backdrop of high prices. Bear in mind though, that the forces driving the current outperformance in the EM&T and Upstream divisions are cyclical, and can't be relied on forever.
But it's not all good news.
The British Gas Services division has been in a sticky spot in recent years, plagued by scandals and poor customer service levels. Customer numbers fell by 226,000, or 7%, in the first half as cost-of-living pressures drive customers to search providers for the cheapest deals. While it's too early to tell, there are some early signs that fortunes could be about to turn. Margins here are heading in the right direction and the division's returned to a slim profit.
Recent bumper profits have helped further shore up the balance sheet. With underlying net cash of £3.0bn, equivalent to around 40% of the group's market value, the recently reinstated dividend and extended buyback programme looks to be on solid ground.. But remember, dividends can vary and are never guaranteed.
We're extremely impressed with how far Centrica's come in the past of couple years. The group now has a sizable cushion for any future bumps in the road. But as volatility and energy prices fall, some of the recent tailwinds will likely come out of Centrica's sails, and profit growth will likely moderate.
Centrica key facts
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