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Centrica recovery a mixed bag

A drop in customer accounts prompted a sell-off of the energy group, but all the signs of strong recovery potential are there
February 27, 2017

When we first tipped energy provider Centrica (CNA) back in March last year, we expected full-year revenue and profit to fall as it set the stage for a larger recovery. Revenue was indeed lower, but it turned a pre-tax profit (see table), while adjusted operating profit rose 4 per cent to £1.5bn. The group has been pursuing a "customer-focused strategy", stripping out costs and turning away from its more capital-intensive exploration and power generation divisions.

IC TIP: Buy at 224.6p

This strategy has had mixed success. Cost-cutting programmes delivered savings of £384m for the year, more than half of the £750m targeted by 2020. But for its core energy supply segment, the overall customer account numbers fell 3 per cent across both its consumer and business sectors. The group's chief executive, Iain Conn, admitted the combined total of 27,544 at period-end may be "one of the lowest ever", and the group's shares fell 4 per cent on the day.

The group has had more success reducing net debt, which fell by just over a quarter to £3.5bn. Growing operating cash flows mean Centrica is edging closer to the sub-£3bn debt level at which it will look at restoring a progressive dividend. Mr Conn says it is "months away, not years away".

Adjusted EPS was 16.8p; prior to these results, analysts at JPMorgan Cazenove expected the same for 2017.

 

CENTRICA (CNA)
ORD PRICE:224.6pMARKET VALUE:£12.3bn
TOUCH:224.6-224.7p12-MONTH HIGH:248pLOW: 195p
DIVIDEND YIELD:5.3%PE RATIO:7
NET ASSET VALUE:49p*NET DEBT:122%

Year to 31 DecTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
201223.92.4224.016.4
201326.61.6518.417.0
201429.4-1.40-20.213.5
201528.0-1.14-14.912.0
201627.12.1931.412.0
% change-3---

Ex-div: 11 May

Payment: 29 Jun

*Includes intangible assets of £4.38bn, or 80p a share