ii view: British Gas owner Centrica boosts shareholder returns

Full-year results to 31 December

• Revenue down 26% to £26.2 billion
• Adjusted profit (EBITDA) down 34% to £2.3 billion 
• Full-year 2024 dividend up 13% to 4.5p per share
• New £500 million share buyback programme
• Adjusted net cash of £2.9 billion, up from 2023’s £2.7 billion

Guidance:

• Expects to pay a full-year 2025 dividend of 5.5p per share

Chief executive Chris O’Shea said:

“2024 was a good year for Centrica as we made further operational improvements and ramped up our investment programme. We are investing in the energy transition, ensuring our customers have the energy they need, when they need it at a price they can afford. 

“Centrica has been transformed in recent years, and most of our businesses delivered against our
medium-term expectations two years ahead of schedule. We now have greater resilience and
financial flexibility supporting the capital returns, dividend increases and new investments in Ireland
announced today. 

“Our confidence in the future is as strong as it's been for a long time and I look forward to continuing to deliver for our colleagues, our customers and our shareholders.”

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ii round-up:

British Gas owner Centrica (LSE:CNA) today detailed 2024 annual results which broadly matched City forecasts, with the supplier of gas and electricity to consumers and businesses across the UK and Ireland increasing shareholder returns. 

A new £500 million share buyback adds to the ongoing £300 million programme, and is now to be completed by the end of 2025. This gives a potential daily purchase of £3.7 million, up from £1.9 million previously. A total dividend of 4.5p per share for 2024 is up 13% on 2023 and due to be paid to eligible shareholders on 2 June. 

Centrica also flagged its intention to raise the total 2025 dividend to 5.5p with a commitment to increase the payment to reach twice earnings coverage by 2028, implying a potential payment of 8p per share. 

Shares in the FTSE 100 company rose 8% in UK trading having come into these latest results up 2% over the last year. That’s similar to energy transmission provider National Grid (LSE:NG.), but behind a 12% gain for the FTSE 100 index itself over that time. 

As well as supplying energy, Centrica also owns oil and gas production assets, along with energy storage and trading businesses and a 20% interest in the UK’s portfolio of existing nuclear power stations.

Annual adjusted profit (EBITDA) fell 34% to £2.3 billion as factors such as reduced energy price volatility impacted the trading business.  

Centrica reiterated previous guidance for 2025 and forecast adjusted profit of £1.6 billion for 2028, ahead of current City forecasts for £1.37 billion.  

In tandem with results, Centrica also announced an expansion of its operations in Ireland as well as a new 15-year agreement to supply Brazil’s Petrobras energy company with Liquefied Natural Gas (LNG), starting in 2027. 

Broker UBS reiterated its ‘buy’ stance on the shares post the results. First-half results are scheduled for 24 July. 

ii view:

Headquartered in Berkshire, Centrica employs more than 21,000 people including around 7,000 gas boiler engineers. Brands supporting its core British Gas supply business include Dyno, Hive and PH Jones. Irish operations come under the Bord Gáis brand. Energy storage assets include the offshore Rough gas storage facility. Oil and gas production assets sit under the Spirit Energy brand and take in the Morecambe Bay gas field.  

For investors, the weather and changes in its seasonality can cause uncertainty around customer energy demand at its supply business. Changes by the regulator can impact business. Costs generally for businesses such as wages remain elevated, while a forecast dividend yield of over 4.5% at rivals like National Grid, Telecom Plus (LSE:TEP) and BP (LSE:BP.) compared to around 3.8% at Centrica.

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On the upside, Centrica’s diversity of businesses regularly sees tough conditions for one area offset by strengths at another. Strong cashflows left the company with adjusted net cash of £2.9 billion at year-end, supporting shareholder returns. A transformation programme over recent years has offered a more stable platform to build on, while management continues to assess and invest in energy transition opportunities such as solar farms and carbon capture.  

In all, and while risks remain, an increased focus on shareholder returns and a consensus analyst estimate of fair value above 165p per share will likely keep investors interested.  

Positives

• A diversity of businesses
• Net cash held

Negatives

• Subject to government scrutiny 
• The weather can impact

The average rating of stock market analysts:

Buy