News

Aug 16, 2023

Centrica shares gain 5% on major profit growth fired by British Gas

The latest first-half results from British Gas owner Centrica (CNA) have received a warm welcome from investors but may get a frostier reception elsewhere as households continue to struggle with their

The latest first-half results from British Gas owner Centrica (CNA) have received a warm welcome from investors but may get a frostier reception elsewhere as households continue to struggle with their energy bills.

The company posted a pre-tax profit of £6.4 billion, as opposed to a loss of £1.18 billion for the first six months of 2022, as revenue soared by 60%. On an underlying basis profit came in at £2.08 billion compared with £1.3 billion a year ago.

Adjusted operating profit at the retail-facing British Gas arm surged to a record £969 million from £98 million supported by the increase in the energy price cap. This was boosted by changes to the cap which allowed it to recoup previously lost costs totaling £500 million.

The company is clear this level of profit will not be sustained longer term.

Volatility in commodity prices also saw its energy marketing and trading division book a 1,900% increase in profit to £1.4 billion.

DIVIDEND UP BY A THIRD AS BUYBACK EXTENDED

Centrica, whose shares were up 5.4% to 130.7p, unveiled a first-half dividend of 1.33p per share, up 33% year-on-year and extended its share buyback programme.

The company expects growth to slow in the second half of 2023 with full-year adjusted earnings per share to be heavily weighted towards the first half of the year, in line with market expectations of between 16.5p to 24.7p.

AJ Bell investment director Russ Mould said: ‘British Gas owner Centrica won’t be winning a popularity contest with the public anytime soon, but shareholders may not be too bothered.

‘The strengths of Centrica’s integrated model have really come to the fore in recent times and after several lean years, the company is able to reward investors handsomely – lifting its dividend substantially and extending a share buyback.'

However, Mould sounded a cautionary note. He said: ‘Political and regulatory pressure may mount on the business if it continues to show largesse with its shareholder returns while taking a hard line with vulnerable customers. All in all, these stonking numbers could put Centrica in the firing line.’

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Tom Sieber) and the editor of the article (James Crux) own shares in AJ Bell.