Why Centrica and Vodafone shares are going different ways

The de-rating of Centrica (LSE:CNA) shares continued today after the cash-rich energy firm disappointed the City with the scale of shareholder returns in its half-year results.

The British Gas owner ranked bottom of the FTSE 100 index performance table Thursday, even though it said most of its businesses are on track to deliver medium-term profit objectives two years early.

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Another stock held widely by retail investors fared better, although today’s rise for Vodafone Group (LSE:VOD) on the back of robust first-quarter figures is hardly cause for celebration. At close to 71p, the shares are still roughly half the price they were just over two years ago.

The slide in Centrica shares from their highs in September has been linked to fears over the potential for value destruction on its large cash pile, which stands at more than £3 billion.

Those jitters were not helped today by a smaller-than-expected £200 million extension to the share buyback programme, taking the running total since November 2022 to £1.2 billion.

Morgan Stanley had been looking for a figure closer to £500 million, adding that a February deadline for the completion of the programme was also a slower pace than expected.

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Centrica’s half-year operating profit of £1.03 billion, which was slightly below the bank’s forecast of £1.08 billion, compared with the previous year’s £2.08 billion as the company adjusted to more normalised trading conditions.

While adjusted earnings per share for the first six months halved to 12.8p, the interim dividend is up to 1.5p a share from 1.33p the year before.

The £79 million award will be paid on 14 November, meaning two distributions in the current half-year as shareholders received the 2023 final dividend of 2.67p a share on 11 July.

The same increase as today would result in a total 2024 dividend of 4.5p a share, a little below the consensus forecast of 4.8p.

Centrica’s double dividend and an expected ramp up in capital investment in the second half of 2024 means it expects to report a decline in its net cash position by the year-end.

The group’s green-focused investment strategy includes capital spending of between £600 million and £800 million per annum until 2028, aligned to the changing energy system.

The first-quarter performance of Vodafone provided some reassurance for shareholders, including no change to full-year guidance for adjusted earnings of about 11 billion euros (£9.3 billion) and free cash flow of at least 2.4 billion euros.

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Growth in service revenues of 5.4% slowed from 7.1% in the final quarter of 2023/24 but was better than the 4.5% consensus thanks to strong performances in Turkey and Africa.

Germany reversed from growth of 0.6% in the fourth quarter to minus 1.5% in the first quarter, while lower inflation contributed to a slowdown in revenues growth in the UK.

A final dividend of 4.5 cents (3.80p) a share is due to be paid on 2 August, but the sale of operations in Italy and Spain means a new capital allocation framework will rebase the total 2025 dividend to 4.5 cents.

Deutsche Bank continues to back Vodafone's recovery potential based on a price target of 140p.

It said today: “Vodafone is in the process of selling underperforming assets, deleveraging, attempting a merger in the UK, cutting costs and buying back material amounts of its own stock. We view the shares as attractive.”