Centrica shares volatile after full-year results

Centrica returned mixed FY23 results last week, as subsidiary British Gas saw full-year profits increase tenfold to £750 million — while the company as a whole saw profits fall by 17% to £2.8 billion.

The FTSE 100 operator saw its shares fall to just 130p this morning. While it recovered to 133p per share through the day, it closed at just below 130p.

While Centrica remains up by more than 25% over the past year, it has only risen by circa 6% over the past five years. Interestingly, it sports a low price to equity ratio of less than 2, with a less-than-inspiring dividend of 3.1%.

Centrica share price: full-year results

In full-year results, Centrica’s adjusted operating profit fell slightly year-over-year to £2.8 billion, excluding disposed Spirit Energy Norway assets — this compares to the £3.3 billion of a year before, but was above the company-compiled consensus of £2.26 billion. The energy provider’s adjusted EPS therefore also fell to 33.4p.

On the other hand, statutory operating profit came in at £6.5 billion, and statutory EPS rose to 70.6p compared to a loss of 13.3p in 2022; this was at least partially due to the unwinding of unrealised hedge positions from last year.

Centrica still saw free cash flow of £2.2 billion, and this included £200 million in working capital inflow compared to the £700 million outflow of 2022. It also retains a significantly strengthened balance sheet compared to last year — with a closing net balance of £2.7 billion, some £1.5 billion more than in 2022.

While the dividend yield may not look inspiring, total cash returns in 2023 reached some £800 million, while the full year dividend was hiked by 33% to 4p per share. Meanwhile, the £1 billion share buyback programme is expected to return even more cash to investors and will run until July 2024.

In addition to the financial positives, CEO Chris O’Shea enthuses that ‘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.’

Where next for Centrica shares?

Citigroup analysts called the share price slump on Monday ‘harsh,’ noting that the fall perhaps stemmed from ‘an investor meeting feedback referencing Centrica not wanting the entire equity story to be around share-buybacks.’

The stock has responded positively; further, it’s building more momentum in its £600 million to £800 million per annum green-focused investment plan.

The company has committed £140 million of voluntary support since the start of 2022 to struggling customers and O’Shea noted in a media call both that the company’s bad debt charge had almost doubled to a ‘little over £500 million’ and that ‘people that we think are struggling to pay, they might continue to struggle. I can't predict where that's going to go.’

It’s worth noting the background to British Gas’s profits: the jump from £72 million was arguably mostly due to OFGEM allowing the energy supplier to recover £500 million of losses from its 7.5 million customers, that it suffered in the aftermath of Russia’s invasion of Ukraine.

But the company has also benefitted from governmental help for consumers to pay their energy bills. And while gas prices have fallen sharply over the past year, energy bills remain higher than in the past.

Perhaps a key risk is political; British Gas was part of a well-publicised scandal in 2023 when it emerged debt agents working for the energy supplier had broken into vulnerable people's homes to force-fit prepayment meters. Given that the subsidiary has seen profits rocket on the back of government support and higher bills, it may feel like a politically easy target in an election year.

Looking ahead, O’Shea notes that the ‘strong underlying operational performance’ has continued into early 2024 — but that ‘sharply lower commodity prices and reduced volatility will naturally lower earnings in comparison to 2023.’

The FTSE 100 business ended today down 8% year-to-date.