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British Fuel proprietor Centrica (LSE: CNA) noticed its share worth rise 10% when markets opened on Thursday (20 February), after the corporate unveiled a powerful set of outcomes.
Centrica has lagged the broader FTSE 100 over the past yr, after a powerful restoration from 2021 to 2023. However as we speak’s numbers counsel to me the enterprise stays on monitor to make sustainable progress. I believe this might open the door to additional share worth good points.
Income down, dividend up!
Centrica’s working revenue fell 43% to £1,552m in 2024. Regardless of this, the corporate unveiled a ten% dividend enhance, lifting the payout to 4.5p per share. That’s a yield of about 3.1%, on the time of writing. Shareholders must also profit from an extra £500m share buyback. My sums counsel this could present good worth for cash at present ranges.
I wouldn’t usually reward an organization for growing its payouts when earnings have fallen sharply. However that is an uncommon scenario. Centrica’s earnings are returning to regular after windfall good points in 2023, when the corporate’s place as an enormous gasoline producer meant it profited from increased vitality costs.
The vitality group’s accounts present clear assist for the dividend and buyback. This enterprise generated almost £1bn of surplus money in 2024 and ended the yr with internet money of £2.8bn.
Investing for long-term development
I believe Centrica CEO Chris O’Shea is aware of he’s struck fortunate. Not so way back, this group was battling flagging earnings and a heavy debt burden.
O’Shea has deliberate a £4bn funding programme that’s meant to assist long-term earnings, enhance buyer satisfaction and place the corporate for a gradual shift in the direction of internet zero. For instance, the corporate put in almost half 1,000,000 good meters final yr.
Centrica additionally agreed to construct two 100MW “versatile hydrogen-ready” gaspower vegetation in Eire and prolonged the lifetime of its 4 UK nuclear energy stations.
Are the shares nonetheless low-cost?
There are nonetheless some dangers right here. For me, the largest concern is that Centrica generated almost half its underlying earnings final yr from gasoline manufacturing and vitality buying and selling on worldwide markets. These companies could be much more worthwhile than being a regulated UK utility. However earnings may also be way more unstable, relying on commodity market situations.
On stability, I believe it is a threat value taking. In my opinion, these companies could possibly contribute considerably extra engaging returns for shareholders than British Fuel would possibly do alone.
Centrica’s enormous money pile additionally implies that it’s capable of spend money on long-term alternatives from a place of energy. If it’s managed effectively, I believe this ought to be an enormous alternative.
Even after this morning’s good points, the shares are solely buying and selling on 10 instances 2025 forecast earnings. Shareholders must also be capable to stay up for a 3.5% dividend yield for the yr.
This appears undemanding to me. My valuation estimates counsel Centrica shares may very well be value extra, even when earnings degree out. I believe this vitality stalwart’s value contemplating.
