Centrica Plc Ord 6,14/81p (CNA)

Company overview

Centrica is a major provider of gas, electricity and energy related products and services to a combined client base of residential and industrial customers. The group looks to source gas and electricity supplies required by its customers such as upstream gas production and electricity generation. Additional services include domestic central heating services along with the operation of gas storage facilities. Centrica employs 30,000 people worldwide, with around 28,000 based in the UK.

HL Update (12 May 2008)

Whilst Centrica continues to try to find the appropriate balance between competitive customer pricing tariffs and the cost of the actual underlying gas which it supplies, the continued rise in the price of oil and gas is beginning to squeeze its current profit margin. The group’s recent trading update highlighted that thanks to this pressure on retail profits and as expected, overall group operating profit for the first half of the year will be materially lower than the first half of 2007. Furthermore, despite increasing its customer tariffs back in January, it could not rule out further increases. Meantime the company has continued to add to its own gas assets with two further purchases made in the USA in recent months. Overall, market consensus opinion remains favourable in tone.

Previous HL Update (21 February 2008)

The group’s recent full year results continued to witness the group’s effective management of customer tariffs over underlying energy prices. Full year operating profits enjoyed a 40pc increase to £1.95 billion, whilst earnings per share rose by a substantial 58pc - last year (2006) saw operating profits down by 5pc. Furthermore, Centrica won back an additional 200,000 customers who had previously switched to rivals. The group also continues to build on its direct gas production assets – providing more certainty in future supply prices - whilst takeover talk still lingers. Market consensus opinion is currently favourable in tone.

HL Comment (8 August 2007)

Now operating under the ‘British Gas’ trade name and once part of the former British Gas group, Centrica competes with a host of energy providers in order to bring both electricity and gas into homes and businesses.

Half year results announced back in late July witnessed the effect of falling energy prices outpacing decreasing energy tariffs which the group charges its residential customers. Furthermore, with price increases having outpaced many competitors, management has been able to cut tariffs quicker than many others helping to attract new customers. Operating profits rose by 80pc to £1.24 billion, while the interim dividend payment enjoyed a further 6.3pc increase to 3.35 pence per share. Profits were also aided by lower customer demand caused by the relatively mild weather and new supplies of gas to the UK, largely coming in from continental Europe.

Longer term, Centrica remains interested in acquiring further gas production assets in order to protect profits and its customers against rising wholesale gas prices. In addition, management continues to bear down hard on costs as job losses and a series of office closures have further helped to compensate for rising gas prices in the past. Takeover speculation continues to surround the shares, with Russian gas operator Gazprom heading the list of potential rumoured acquirers. Overall, the current market consensus opinion is positive in tone.

 

All yield figures are variable and not guaranteed.

Fundamental Data

Year Ending	Revenue (m)	Profit Before Tax (m)	EPS (p)	P/E Ratio	PEG	EPS Growth (%)	Total Dividend	Dividend Yield
31-12-2007	16,342.00	2,111.00	35.30	11.70	0.20	59.00	13.00	3.60
31-12-2006	16,403.00	(11.00)	(5.40)	18.50	2.60	7.00	11.15	3.10
31-12-2005	13,448.00	1,812.00	26.20	14.20	1.80	8.00	10.50	4.10
31-12-2004	11,361.00	1,159.00	14.80	14.30	n/a	n/a	8.60	3.60
31-12-2003*	17,931.00	778.00	n/a	n/a	n/a	n/a	5.40	2.30

* Prior to 31st December 2004, figures were stated under UK Generally Accepted Accounting Principles (GAAP). Recent figures stated under International Financial Reporting Standards (IFRS).