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Centrica - strong operational performance pushes guidance higher

Centrica expects to deliver full year underlying earnings per share (EPS) above 30p...

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Centrica expects to deliver full year underlying earnings per share (EPS) above 30p, after what the group described as "strong operational performance" since the last trading update. That marks a significant improvement over the previous guidance range which suggested EPS would come in at a maximum of 26p.

Net cash at the end of the financial year is expected to be above £1bn.

2022 Preliminary Results are due to be released on 16 February 2023.

The shares were up 5.7% in early trading.

View the latest Centrica share price and how to deal

Our view

Markets weren't given a whole lot to go on in Centrica's recent trading update, nevertheless a good improvement in expected EPS for the year was enough to push the shares higher.

Two of the stronger performing divisions of late have been the infrastructure and optimisations businesses, which are involved in energy trading and storage - both of which have been benefactors of a volatile market. It's unclear how long that particular tailwind will last.

At the same time, Centrica owns British Gas, Britain's biggest household supplier. 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.

Those pressures were already starting to impact the cost base and customer numbers at the half year mark and we're not expecting that to change overnight.

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

Centrica's streamlined its asset base in recent years, most recently with the sale of Spirit Energy's Norwegian assets for £1.1bn. 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 last year, 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 valuation below the 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 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.

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Written by
Matt-Britzman
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 12th January 2023