15th Feb 2024 11:46
(Alliance News) - Shares in Centrica PLC lit up as annual earnings beat forecasts, although analysts said a big hike in the dividend could spark criticism in a cost-of-living crisis.
Shares rose 2.5% to 137.85 pence in London on Thursday.
On Thursday, the Windsor, England-based owner of British Gas reported a return to profit in 2023 at the statutory level, with a pretax figure of GBP6.47 billion compared to a pretax loss of GBP383 million in 2022. The figure for 2023 included exceptional items of GBP3.76 billion.
Operating profit fell to GBP2.75 billion from GPP3.31 billion, reflecting improved profit at its British Gas retail arm, but a worse performance in its optimisation and infrastructure businesses.
Annual profit at British Gas multiplied to GBP799 million from GBP94 million aided by the regulator allowing energy companies to recoup costs incurred during the energy crisis.
UBS said results were above consensus but in line with its forecasts.
The bank said earnings before interest and tax of GBP2.75 billion compared to the GBP2.61 billion company consensus. Basic earnings per share of 33.4 pence compared to the 30.6p consensus.
UBS felt the results were a "small positive".
"Earnings and net cash came considerably ahead of consensus and there was no negative warning for 2024 (which some may have expected following RWE's guidance cut)," the broker explained.
But it noted there was limited commentary around progress on capital deployment, and details of how Centrica plans to use the growing cash pile "remains unclear".
Aarin Chiekrie, equity analyst, Hargreaves Lansdown highlighted the "strong recovery in its British Gas Energy division, with performance boosted by increased allowances in the UK price cap in the first half".
However, he noted the majority of these tailwinds should have been accounted for now, and over the medium term, underlying operating profit from this division are expected to moderate from GBP751 million to around GBP150-250 million per year.
AJ Bell's Russ Mould focused on the dividend, noting Centrica is in a "difficult situation" where the business is doing well but the cost-of-living crisis is still in full flow.
Centrica increased the annual dividend by 33% to 4.0 pence per share from 3.0p, including a final payout of 2.67p, up from 2.00p the year before.
Centrica said its GBP1 billion share buyback programme is expected to run to July 2024. As at February 14, it had bought back GBP727 million of shares since the start of the programme.
Mould suggested that "once again [Centrica] will be sucked into the debate about profits versus principles".
"Hiking the dividend by 33% and ploughing ahead with a GBP1 billion share buyback programme suggests that shareholders are milking it while some families are struggling", he added.
But at the end of the day, "businesses are allowed to make profits and they can decide how to spend that money as they wish", he stressed.
By Jeremy Cutler, Alliance News reporter
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