In a short trading update, Centrica revealed that its full-year Retail cash profits (EBITDA) are now expected to land at the lower end of its £500-800mn guidance range. This reflects warmer weather and challenges with bad debt collections.
In Optimisation, the group’s energy trading arm, cash profit guidance has been maintained at around £250mn.
Infrastructure cash profit is now expected to be above the top end of its £500-600mn guidance range.
Centrica also announced the £370mn cash acquisition of the Severn gas-fired power station from the Calon Energy Group. This adds 850MW of capacity to Centrica’s portfolio, and the plant is expected to generate cash profits of between £30-60mn from 2027.
The shares fell 4.7% in early trading.
Our view
British Gas owner Centrica had a hot-and-cold start to the year, with a better-than-expected performance in its Infrastructure business helping to offset some softness in its Retail arm. A £370mn cash acquisition of the Severn power plant wasn’t enough to distract markets, though, and the share moved lower on the day.
The £370mn price tag for the Severn power station looks like a good deal to us, and significantly expands the group’s flexible power generation capacity. It’s one of the more efficient gas-fired plants and is conveniently located near growing power demand, including new data centre developments in South Wales.
The Retail division is under a bit of pressure, with warmer weather and financially struggling customers called out as reasons for soft profits in the early months of the year. Aside from this, recent initiatives to improve the customer experience are bearing fruit, with customer numbers and satisfaction scores both trending in the right direction.
The Optimisation division houses Centrica’s energy trading arm. This 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. However, the subdued energy prices of last year were unfavourable, causing the group to hit pause on its storage operations. As a result, it looks like the group’s missed out on benefitting from the recent volatility in energy prices.
The Infrastructure division is responsible for producing oil and selling power from its UK nuclear plants. Underlying performance is improving, and profits now look set to land ahead of group guidance, largely due to higher energy prices.
Big plans are afoot to turn this unit 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.
The balance sheet remains in good shape, with enough cash on hand to help fund the group’s mammoth investment plans, and the forward dividend yield of 3.3% looks well covered. But in order to make sure it doesn’t burn through cash too quickly, the group’s stopped share buybacks for now (2025: £0.8bn), a clear reminder that shareholder returns are never guaranteed.
The longer-term picture for Centrica remains favourable, helped by its ongoing investments in the business and the expected life extension of its nuclear fleet. There’s also a sizable cash pile to cushion any further bumps in the road. But a lot of these strengths now look priced into the valuation. Warmer weather and consumer finances coming under pressure are both unfavourable forces, and remain outside of the group’s control.
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.
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 LSEG. 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.
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