10th Nov 2022 11:12
(Alliance News) - British Gas has suffered hits from inflation and mild October weather, though its blue-chip owner Centrica PLC was undeterred, lifting annual guidance on Thursday.
It also announced a buyback, worth up to around GBP250.0 million at current market prices.
Centrica's largely positive announcement, save for a British Gas warning, comes as energy companies face pressure from calls for a windfall tax.
"For as long as energy companies continue to post record profit while consumers are facing soaring energy bills the debate around some form of windfall tax is not going to go away. However, some of the heat has been taken out of the debate by some very mild autumn temperatures – reflected in a weak showing for Centrica's British Gas retail business," AJ Bell analyst Russ Mould commented.
The company now expects 2022 adjusted earnings per share to come in at the top end of a 15.1p to 26.0p sell-side analyst range.
"Volumes from our electricity generation and gas production activities have remained strong, while in October we announced the reopening of the Rough gas storage facility, all of which contributes to strengthening the UK and Ireland's security of supply. In addition, in Energy Marketing & Trading our optimisation and route to market activities continue to perform very well, playing a critical role in storing, transporting and balancing energy supply across Europe," Centrica said.
Its Retail division has come under pressure, however. Inflation and poor economic conditions have "impacted both our cost base and customer numbers in British Gas Services & Solutions". In addition, mild October weather in the UK has meant British Gas profit and volumes were weaker.
Adjusted operating profit in the Retail division will be lower than current expectations, Centrica cautioned.
Still, stock market traders liked what they saw. Shares in the FTSE 100 constituent rose 9.0% to 84.52 pence.
The firm announced plans to begin a share buyback, of up to 5% of its issued share capital. At current market prices, the buyback would be worth around GBP250.0 million.
"The market's seen a fire lit under its belly where Centrica is concerned, with the British Gas giant boosting full year earnings expectations and embarking on a buyback – its first since 2014," Hargreaves Lansdown analyst Sophie Lund-Yates commented.
In addition, Centrica said it is investing another GBP25 million to help its customers with skyrocketing energy bills. It takes the amount it has invested for bill support to GBP50 million this year.
AJ Bell analyst Mould noted Centrica may be mindful of bad debt.
Mould added: "Centrica is concerned about the impact of some customers being unable to pay their bills and it is clearly aware of the reputational issues as it puts more money into a customer support fund. It may not feel like it just now with temperatures regularly in double digits nearly halfway into November, but winter is coming and the pressures are only going to get more acute. Centrica will be nervously awaiting the outcome of the Autumn Statement a week today where there may an extension of the existing windfall tax."
Berenberg analysts on Wednesday, however, said government support recently has calmed bad debt worries for energy suppliers.
"Most countries have now implemented direct or indirect support on energy bills for homes, businesses and industry in the form of value-added tax cuts, subsidies or price caps. This helps ease bad debt risks for households and, therefore, help energy suppliers like E.ON, Engie or Centrica," Berenberg said.
By Eric Cunha; [email protected]
Copyright 2022 Alliance News Limited. All Rights Reserved.
Related Shares:
Centrica