Centrica’s trading so far this year has been in line with group expectations, against a backdrop of more normal market conditions.
The group said that all Retail Supply and Optimisation businesses look set to land within their medium-term sustainable underlying operating profit ranges in 2024, two years ahead of schedule. British Gas Services and Solutions is expected to deliver an “improved” financial performance compared to last year.
Full-year underlying earnings per share (EPS) are set to land in line with market forecasts, which points to a range of 15.8-21.0p. As usual, profitability is set to be “strongly weighted” to the first half of the year.
The shares fell 3.7% following the announcement.
Our view
British Gas owner Centrica's performance so far has been in line with group expectations, with some divisions even hitting medium-term profit targets two years early.
The consumer-facing British Gas Energy (BGE) division enjoyed a stellar performance last year, buoyed by increased allowances in the UK price cap. This allowed a significant one-off recovery of costs from prior periods, providing a boost of around £500mn to underlying operating profits. Most of these tailwinds have been felt now, and profits in this division are expected to moderate to its medium-term target range of £150-250mn this year.
The recently renamed Centrica Energy is the group's trading arm, 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. Profits here look set to more than halve from last year’s levels. Despite this, it's still likely to be the group's biggest money-maker, even if energy prices and volatility dampen down.
The Infrastructure division is responsible for the production of oil as well as the sale of power from its UK nuclear plants. Underlying performance has weakened in recent times, largely as a result of lower production volumes. That trend's likely to continue in the near term as big plans are afoot to turn this segment into a renewable energy powerhouse. But the transition's not going to come cheap or quickly, with between £600-£800mn per year set to be invested in the transition out to 2028, which could put a strain on cash flows if returns aren't as high or quick as planned.
Customer numbers in the British Gas Services division fell by 8% in 2023 as cost-of-living pressures drove customers to search providers for the cheapest deals. Most of this customer shift came in the first half of last year, and it appears things have stabilised since. The group has invested heavily in improving its service levels, and it's beginning to show through lower job rescheduling rates and complaints. Margins here have moved in the right direction and the division's set to deliver improved profitability this year.
The balance sheet was in good shape at year-end, with underlying net cash of £2.8bn. That means the recently reinstated dividend and extended buyback programme looks on solid ground for now. 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
All ratios are sourced from Refinitiv, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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