Join our community of smart investors

Cold snap is good for Centrica

The UK has been frozen but Centrica has been heating up nicely as British Gas reports increased gas and electricity consumption and output increases in the upstream oil and gas business.
May 15, 2013

Cold weather and persistently high commodity prices have meant a good start to the year for Centrica, and the utility company says it is on target to hit earnings expectations of 26.7p for the full year. We retain our buy recommendation with the shares up 14 per cent to 384p over the last six months and only £66.5m of the proposed £500m share buy-back completed.

IC TIP: Buy at 384p

The never-ending winter has been good for British Gas, which accounts for 40 per cent of Centrica's operating profits. Gas consumption in the first four months of the year was up 18 per cent on the prior period and electricity consumption was up 3 per cent, and around 28,000 new accounts were added. Centrica said that while operating profits for the residential supply business were on target and will be weighted towards the first half, profits from the cold snap will be used to keep customer bills down. The supply of energy to UK business continues to be difficult, with falling numbers of customers and tighter margins.

Prospects for Centrica's upstream oil and gas business, responsible for 45 per cent of operating profit, are also bullish as production output from existing assets improved by 12 per cent and wholesale gas prices remain high. In the power generation business output from nuclear plants increased by 8 per cent on the prior year, but gas generation is suffering from tighter margins.