Welcome to HL's reimagined News, Insights and Research experience. Find out more

Share research

Centrica - earnings to be at high end of expectations

Centrica expects full year underling earnings per share to be at the top end of the 15.1p - 26.0p range currently expected by analysts.

No recommendation - No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Prices delayed by at least 15 minutes

This article is more than 1 year old

It was correct at the time of publishing. Our views and any references to tax, investment, and pension rules may have changed since then.

Centrica expects full year underling earnings per share to be at the top end of the 15.1p - 26.0p range currently expected by analysts. The group's liquidity has also improved since the half year.

Inflationary and economic conditions have increased the group's costs, and dented customer numbers in British Gas Services and Solutions. British Gas Energy volumes have been held back because of unusually warm weather. As a result, underlying operating profit in the Retail business will be lower than current expectations.

Centrica has announced an extra £25m of help for customers, taking the total to £50m.

A share buyback has been announced, with Centrica aiming to buy back up to 5% of its issued share capital, or around £250m.

The group warned of significant short-term uncertainty, including the impacts of weather, commodity prices, a weakening economy and high inflation.

Centrica shares rose 8.2% following the announcement

View the latest Centrica share price and how to deal

Our view

It's easy to take the recent bounce as an about-turn in Centrica's position. Unfortunately, this isn't the case.

The market's reacted positively to the better-than-expected outlook for the full year. But this is being driven by something outside the group's control - and therefore can't be relied on. Rising wholesale energy prices are a source of profit growth for now, with benefits being felt in gas production, electricity generation arms and energy trading. But the opposite will be true if things reverse.

At the same time, British Gas is Britain's biggest household supplier, so if a large portion of customers struggle to pay their bills amid the cost-of-living crisis, current conditions could have an enormous potential impact for the Retail division. Not to mention Centrica's struggled with staffing issues and workload buildup, leading to poor customer service which ultimately cost the group £25m last year. And that doesn't account for the 5% of customers who walked out the door.

For the challenges, there are some genuine signs of progress from the group's protracted turnaround.

Centrica rid itself of its US Direct Energy business last year and Spirit Norway's been given the boot. The proceeds from these disposals substantially improved Centrica's balance sheet, giving management more room to manoeuvre through volatile conditions. Cost saving efforts were the real hero, though, ultimately driving profits higher.

The group's in a much better place to weather the energy-price storm than it was just a few years ago. The balance sheet looks much healthier, finally sporting a net cash position. That's allowed the group to reinstate dividend payments. However no dividends are ever guaranteed.

Centrica's transformation has been successful thus far, and we're impressed by how far they've come. But there's still a long way to go and the future's been muddied by looming uncertainty. That's tempered the market's expectations, with a price to earnings ratio below their long-term average. This could be an attractive entry point for those willing to take on some risk, but with so much uncertainty we'd advise caution.

Centrica key facts

All ratios are sourced from Refinitiv. 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.

This article is original HL content, published by HL. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

Latest from Share research
Weekly newsletter
Sign up for editors choice. The week's top investment stories, free in your inbox every Saturday.
Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

Our content review process
The aim of Hargreaves Lansdown's financial content review process is to ensure accuracy, clarity, and comprehensiveness of all published materials
Article history
Published: 10th November 2022