Centrica released a short trading update ahead of its annual general meeting.
British Gas Residential Energy saw a rise in customer numbers but has been negatively impacted by the warmer than normal weather in the second quarter. Full-year underlying operating profits are expected to remain within its medium-term guidance range (£150-£250mn).
Due to challenging market conditions, Centrica Energy (the group’s energy trading arm), is expected to report full-year underlying operating profits towards the lower end of its medium-term target range (£250-£350mn).
Centrica Energy Storage’s underlying operating losses are expected to be at the higher end of its £50-£100mn guidance range.
Centrica does not expect to suffer any material impact as a result of potential global trade restrictions.
2025’s full-year dividend is set to rise by 22% to 5.5p per share.
The shares fell 7.9% in early trading.
Our view
British Gas owner Centrica experienced a slow start to 2025, as some of its businesses that are sensitive to market volatility underperformed. While the company has maintained its full-year profit guidance range at the group level, early results suggest that profits may come in toward the lower end of the target range.
Despite some recent softness, we should point out that the group is making good progress towards its medium-term profitability targets across its different divisions. In fact, the majority of Centrica’s businesses look on track to deliver these targets ahead of schedule.
Operational performance is showing signs of improvement. Customer numbers are on the up again, after a period of outflows in the prior year, and customer satisfaction scores are moving in the right direction as complaints have reduced.
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. Operating profits here were down 60% last year. Despite this, it's likely to be the group's biggest money-maker moving forward, even if energy prices and volatility dampen down further.
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 prices.
Big plans are afoot to turn the infrastructure 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.
The balance sheet remains in good shape, with underlying net cash of £2.9bn at the last count. That means the recently reinstated dividend and extended buyback programme looks on solid ground. But remember, dividends can vary and are never guaranteed.
We're extremely impressed with how far Centrica's come in the past couple of years, and the group now has a sizable cushion for any future bumps in the road. Profitability may come under pressure in the near term, but we feel that’s baked into the low valuation. Difficult market conditions mean sentiment could remain muted for a while longer.
Environmental, social and governance (ESG) risk
The utilities industry is high-risk in terms of ESG. Management of these risks tends to be strong, with European firms outperforming their overseas counterparts. Environmental risks like carbon emissions, resource use and non-carbon emissions and spills tend to be the most significant risks for this industry. Employee health and safety and community relations are also key risks to monitor.
According to Sustainalytics, Centrica’s management of ESG risk is strong.
It has a board-level committee overseeing ESG issues such as safety and environmental programmes. Services have been digitalised to help improve customer experience and retention, however, customer complaints at British Gas Energy rose by 5.9% in FY22. Centrica also reports ESG information in its annual report, which does not follow best practices.
Centrica key facts
All ratios are sourced from LSEG Datastream, 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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