How Is Centrica Faring Amid Tough Environment?

  • May 15, 2019 BST
  • Team Kalkine
How Is Centrica Faring Amid Tough Environment?

Overview

Centrica PLC (CNA) is a Windsor, United Kingdom-based international energy and services corporation with primary operations comprising of supplying power and gas to businesses and consumers. Along with five other power supplying company, it's a part of Britain's 'Big Six' energy suppliers. Its target market includes the United Kingdom, Ireland and North America.

Trading Update

Amid a challenging trading environment, the company's operational performance was mostly in line with the expectations. The company is bracing for an expected negative impact from the UK default tariff cap, falling UK natural gas prices and warmer than normal weather; though some are temporary in nature, they will impact financial performance in the first half of 2019. Centrica has maintained its guidance for FY 2019 on operating cash flow in the £1.8-£2.0bn range and net debt within the £3.0-£3.5bn range.

Financial Highlights (FY 2018, £ million)

The group's financial performance for the year was mixed against a challenging external backdrop, both economically and politically. The company's revenue rose by £1.7 billion, or 6%, to £29.7 billion, against £28.0 billion reported in 2017. It was driven by a 12% increase in the Centrica Business but offset by a fall in the Centrica Consumer Group due to the impact of lower energy customer accounts. Statutory operating profit stood at £987 million, while adjusted operating profit surged by 12% to £1,392 million. Profit for the year decreased to £658 million, versus £705 million reported in 2017, and adjusted earnings dipped by 9% to £631 million, primarily due to an increased tax charge. Reflecting the lower earnings, adjusted basic EPS decreased to 11.2p, against 12.5p in 2017. The adjusted operating cash flow and net debt stood at £2,245 million and £2,656 million, respectively.

Share Price Commentary

Daily Chart as at May-15-19, before the market closed (Source: Thomson Reuters)

 

On 15th May 2019, at the time of writing (before the market closed, GMT 11:55 am), CNA shares were trading at GBX 95.85, up by 0.92 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 164.50/GBX 92.58. The company’s stock beta was 0.65, reflecting less volatility as compared to the benchmark index. Total outstanding market capitalization was around £5.43 billion with a dividend yield of 12.63%.

Conclusion

The company has been on a roller coaster ride in the last few months with questions being raised about the sustainability of earnings and dividends. The company is facing a hard environment from volatile commodity prices, constraining regulatory interference and increasing competition. A new price cap also kicked in from the start of the year, which limits the price energy companies can charge its customers, further constraining earnings. Although the group has maintained its dividend for the year 2018, the dividend for 2019 looks highly doubtful. However, the company is focusing on cost efficiency and has developed new customer-facing capabilities in both Business and Consumer.

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