Disappointing H2 19, poor FY20 outlook
Disappointing full-year results after a 9m trading statement that had seemed encouraging. Adjusted operating profit came in short at £901m, however the adjusted EPS came in perfectly in line with the consensus. On the positive side, adjusted operating cash flow came in slightly above our expectations. However, despite a good level of cost reductions targeted for FY20 (c. £350m), the group expects the FY20 adjusted operating cash flow to be lower than in FY19 (£1.6-1.8bn versus FY19: £1.8bn). We confirm our cautious view.
13 Feb 20
STATE OF CHARGE - INVESTMENT OPPORTUNITIES IN EV CHARGING
Government bans on new fossil fueled vehicles in many major economies are likely to drive significant growth in electric vehicles (“EVs”) over the next twenty years. This will create growth in electricity demand from EV charging. The volume of energy to be supplied creates opportunities for both supply companies and generators and the provision of charge points is already creating a new industry. However, the timing of this demand puts pressure on local distribution infrastructure. While smart charging and vehicle to grid technology offer solutions, we believe these will only be partial given likely charging behaviour and as a result there will be demand for additional grid capacity and for other solutions. These other solutions include charger located storage and distributed generation.
CNA NG/ YU/ DRX GOOD RED SMS IKA AFC
01 Oct 19
CEO steps down, dividend slashed
FY18 had raised concerns about the sustainability of the dividend, and Centrica has finally cut it by nearly 60% after the catastrophic figures for H1. The group has announced its intention to exit from oil and gas production in order to refocus its activities on services around the transition to low-carbon. The group tried to reassure about the outlook for H2, confirming its cash flow and net debt full-year targets.
30 Jul 19
Is Centrica a value trap?
In our last model update we affirmed that, in the long run, a recovery was still possible, but that we preferred to remain cautious for the time being and wait for some news flow positive enough to cause an inflection point. Unfortunately, in the absence of a positive element, we have now decided to review our approaches and adopt a more conservative view.
20 Jun 19
2018-20 under pressure, causing uncertainty about the dividend
Centrica delivered a mixed set of results FY18, adjusted operating cash flow and net debt were within the target ranges, but EPS is 2.6% lower than expected. Due to the UK default tariff cap the low volumes in E&P and nuclear, group downgraded AOCF guidance for 2019 is 1.8-2.0, or 13.6% lower than the required average pace of growth to reach the 2018-20 target.
21 Feb 19
Customers kept walking away in Q3 18
Centrica released a weak trading statement. Competition remained intense in the UK during the four months to October. The company lost 372k accounts in its Home business, while the E&P business suffered from unplanned outages forcing Spirit Energy to cut its 2018 production target by 5%. However, the group confirmed its 12p dividend target for 2018, ensuring a comfy 8.8% yield at today’s price, thus limiting the downside risk.
22 Nov 18
Rising wholesale costs and intense competition weigh on H1 results
Centrica released a rather weak set of H1 results. EBITDA was broadly flat while adjusted operating profit was down 4% as profit recovery in E&P was more than offset by tough market conditions in the Retail segment. The group confirmed its FY18 objectives and expects to pay a stable dividend in 2018 (12p).
31 Jul 18
Q1 chill boosts Centrica's retail activities, outlook confirmed
Centrica released a short Q1 trading update. Centrica’s management said that the overall performance has been good in the year to date, driven by higher demand for gas following the colder weather and confirmed its set of FY targets (including the 12p dividend), with revenue growth expected to be weighted towards the second half of the year.
14 May 18
The business division bites, consumer losses continue; dividend maintained until 2020
• The Centrica Business division hammers the group’s results. • The company lost 5.2% of its clients (-1.4m) in the customer segment and -7.1% in the Business one (-100k). • Price cap should hurt 2019 margins (and earnings), but impact unknown. • Reassurance on the dividend side and OCF guidance (£2.1-2.3bn) is a positive.
22 Feb 18
Profit warning and accelerated customer losses; dividend under pressure
The group has stated in its trading update that it expects adjusted EPS for 2017 to be close to 12.5p, which is 17% below the 15.2p we previously expected. It confirmed its adjusted net debt target at £2.5-3bn and operating cash flows to be above £2bn. It has also raised its cost-cutting target for the year to £300m, from the previous £250m. It maintains its capex target at close to £1bn (with £500m for E&P). Moreover, driven by the group’s exposure to the retail market, it confirmed that the company lost 823k customers in the last three months. In addition to this, the group has stated that during the transition phase towards greater customer exposure and diversification to improve margins, Centrica would be forced to have a dividend cover below its historic levels.
23 Nov 17
Solid H1 and a price rise amid the transition
Centrica’s solid H1 numbers and 12.5% electricity tariff increase announced yesterday morning were both in line with market expectations. Operationally, the business was resilient given this year’s warm weather and challenging competitive dynamics. The political impact of the tariff hike was mitigated by protecting 200,000 vulnerable customers, a move we view as sensible given especially high levels of political risk in UK retail energy currently. The bigger story for Centrica shareholders remains the long-term shift away from upstream ‘asset businesses’ to tech-enabled customer businesses. Yesterday’s announcements do not change that strategy and the reality is that Centrica is very early in its strategic change of direction.
02 Aug 17
The last member of the “Big Six” to hike prices
Centrica reported a mixed set of results for the first half. The company achieved higher revenue (+7% to £14.29bn) and EBITDA (+2% to £1,293m) despite unfavourable weather conditions and competitive pressures. However, the group saw an 11% contraction in adjusted net earnings to £449m. As a direct consequence, it announced a 12.5% increase in the price of electricity on the British Gas standard tariff, effective from mid-September onwards. This is the first increase in four years, while gas prices will remain the same. Adjusted operating cash flow (AOCF) fell by 9% to £1,242m, reflecting a one-off working capital inflow in 2016. However, net debt has improved to £2,941m (a 22% reduction), on the back of the portfolio rotation strategy. Moreover, the group confirmed its full-year guidance as its strategic transformation and efficiency programme are well on track: adjusted operating cash flow >£2bn net debt in the £2.5-3bn range by year-end a further £250m efficiency savings The company proposed a flat interim dividend of £3.6p/share (30% of the FY2016 dividend), in line with historical practices.
01 Aug 17
Strong 2016 performance, but weak guidance and dividend below expectations
The group has provided strong results given the conditions, beating forecasts across the board on its 2016 performance. Revenue decreased by 3% yoy to £27.1bn, but the contraction is less dramatic than expected. Adjusted operating profit, on the other hand, increased by 3.8% yoy and is 6% above market consensus, with adjusted net income on the same path with 3.8% yoy growth to €895m. EPS decreased by 2% yoy due to the issued shares and the diluting effect of the capital increase made last year to finance the acquisition in the retail business. On a reported basis, the company had an operating profit of £2,486m and £1,672m in net income, a strong performance. The best part came from the operating cash flow, the main objective of the company, as this grew by 19% yoy to £2,686m. The E&P business is in positive territory with a positive free cash flow. As a result, net debt decreased by 27% to £3.5bn, far better than previously expected. The dividend payment will be 12p/share, in line with last year’s, but below expectations given that the expected improvement on cash flows should have benefited shareholder remuneration, but it didn’t. Operating cash flows are expected to be above £2bn, which implies a contraction in the performance achieved over the year. Investments will be limited to £1bn for 2017.
23 Feb 17
Trading upgrade provides a guidance uplift
Centrica has published its Q3 16 trading update, raising its guidance expectations for 2016 with operating cash flows now expected in the £2.4-2.6bn range (+20%) rather than the £2bn earlier. Moreover, due to the gas assets’ better performance, benefits from the cost-cutting programme, and a strong performance in energy marketing and trading, the group expects the full-year EPS to be around 16.5p, whereas the market estimates something close to 15.4p (+7.1%). Nonetheless, the new expectations imply that EPS is expected to decrease by 4% yoy, although this is less than previously expected (-10.5%), which represents a substantial improvement.
15 Dec 16
Strong cash flow performance is reassuring
Results fell 13% yoy to £13.38bn. However, £969m from the re-measurement of energy contracts has positively affected the reported results leading to a 31.5% yoy increase in operating profit to £1.76bn and net income to have a 9.3% yoy increase to £1.15bn, translating into an EPS of 22.2p. As a result, the company has increased the interim dividend by 1% to 3.6p. Nevertheless, on an adjusted basis the results show a different story as operating profit fell 12% yoy to £853m, net income decreased 14% yoy to £507m with EPS reaching 9.8p. Although, on an adjusted basis, operating cash flows increased by 19%yoy to £1.37bn. The strong cash flow performance in the first quarter has allowed the group to increase capex by 16% yoy to £444m which, added to the £694m capital increase performed earlier in the year, has allowed the company to have a comfortable net increase in cash of £1.28bn at the half year mark. This has allowed the company to achieve a 23% yoy decrease in net debt, to reach £3.8bn. Concerning guidance, the 2016 full-year expectation on operating cash flows above £2bn is expected to be exceeded. Moreover, as strong progress has been achieved in cost-cutting measures, as £141m has been achieved in the first half, the 2016 cost cutting target has been raised to £300m. Headcounts are expected to be reduced by around 3,000 FTEs.
28 Jul 16
Trading update: customer losses accelerate, but guidance confirmed
Centrica has published an operational update with no revenue or profit numbers but confirms its full-year objectives: adjusted operating cash flows above £2bn, capex should not exceed £1bn (in which £500m would be focused on E&P) and a £200m efficiency programme is still expected to be achieved in 2016, as part of the £750m/year cost reduction programme. Moreover, the group expects to add to the direct headcount reduction expected in 2016 of 3,000 employees, of which 800 have been already been achieved in the first three months. Nevertheless, the group continues to lose clients as its home energy supply accounts have been reduced by a further 1.5% in the first quarter (an additional 224,000 customers lost, compared to 119,000 customers lost in Q1 15). Due to this, a more aggressive strategy will be applied from Q2 16 to stop the loss of customers. The negative effect may be offset by North American home accounts (although not quantified). As previously announced, the group is to close the Killingholme power station after it has served the National Grid for 2015’s winter supplemental balancing reserve.
19 Apr 16
Weak top-line with good cash flow performance; exit of E&P being evaluated
Mixed results as sales reached £27.97bn, representing a 4.9% yoy decrease and falling short of expectations due to the decrease in customer accounts, and gas and electricity consumption. Operating profit finished in negative territory at -£857m due to £2.35bn of impairments and provisions, while on an adjusted basis it reached £1.38bn, which represents a 20% yoy decrease and missing forecasts. Bottom line, the group has performed better than expected due to lower financial expenses and taxes, as on an adjusted basis it has reached £863m which represents a 10% yoy decrease, but the fall is less than expected. Adjusted EPS reached 17.2p; however, on a reported basis the group booked again a net loss reaching -£747m that translates into a -14.9p EPS. Moreover, net debt was reduced by 9% yoy to £4.74bn. Adjusted operating cash flows improved by 2% yoy reaching £2,253m and the group expects to deliver 3-5% growth per annum, which is a positive. Free cash flow finished in positive territory after dividends and debt repayment. The dividend payment has been reduced by 10% yoy to 12p/share, but management expects it to steadily increase from this point forward. Guidance is focused on cash flow as lower commodity prices would continue to impact the group’s results especially the E&P and power generation business: the group expects to bring adjusted operating cash flow to £2bn in addition to a £750m/year cost efficiency programme, out of which a £200m/year reduction has already been achieved.
19 Feb 16
Pressure from lower gas prices: asset disposal and job cuts
Despite the increase in residential consumption due to colder weather than in the previous year, the 10% decrease in household tariffs puts some pressure on margins. Revenue decreased by 2% yoy to £15.45bn, adjusted operating profit decreased by 3% yoy to £1bn. Adjusted for one offs, net income increased by 15% to £611m.
31 Jul 15