British Gas owner's profits soar on war prices

No tax figure or ‘support’ cash was going to distract the public from the profit figures published by British Gas owner Centrica (CNA) as part of its 2022 full-year results.

That adjusted earnings figure (removing paper derivative revaluations) of £3.3bn was impressive, three times 2021's figure, and has driven further buybacks and the expected 2p a share final dividend for the year. At the same time, Centrica said it put £75mn towards supporting vulnerable customers and paid £1bn in taxes last year. 

The public-facing segment of the business, the British Gas retail arm, was arguably the worst performer. This was driven by its role as the supplier of last resort, a role that added 700,000 customers to the British Gas roster across 2021 and 2022, while a “weak commercial performance” also knocked earnings – adjusted operating profits were down from £267mn to £94mn. 

British Gas Energy was the top division in terms of free cash flow, at £1.3bn, driven by “the short-term acceleration of cash flows from government support schemes”, but the real driver of earnings was its trading division, which brought in an operating profit of £1.4bn.

This is also helped the tax rate come down from 59 per cent in 2021 to 34 per cent, also driven by a loss on the Spirit Energy sale and “the change in profit mix” towards trading and nuclear generation. 

The company found itself in the headlines this month because subcontractors had broken into customers’ houses to install pre-payment meters – Centrica said it was “extremely disappointed” this was happening.

The company has slimmed down significantly in recent years and is now moving on to stage two of its revamp plan, which includes bringing workers onside and making its engineers more reliable.

Profits will fall back once this volatility eases and there will be a clearer picture of just how successful the business is given broader pressures over staffing and costs. We are, however, bullish on a net cash and large-scale utility right now. Buy. 

Last IC View: Buy, 89p, 28 Jul 2022

CENTRICA (CNA)
ORD PRICE:	104p	MARKET VALUE:	£ 5.96bn
TOUCH:	104-104.3p	12-MONTH HIGH:	105p	LOW: 66p
DIVIDEND YIELD:	2.9%	PE RATIO:	NA
NET ASSET VALUE:	18p*	NET CASH	£825mn

Year to 31 Dec	Turnover (£bn)	Pre-tax profit (£bn)	Earnings per share (p)	Dividend per share (p)
2018	23.3	0.58	3.30	12.0
2019	13.0	-1.03	-16.8	1.50
2020	12.2	-0.58	0.70	nil
2021	14.7	0.77	10.0	nil
2022	23.7	-0.38	-13.3	3.0
% change	+61	-	-	-
Ex-div:	08 Jun
Payment:	20 Jul
*Includes intangible assets of £1.1bn or 19p per share