British Gas owner Centrica is still losing customers despite boost from cold weather

Centrica updates the market and we look at what it means for personal investors

Article updated: 14 May 2018 11:00am Author: Helal Miah

  • Britain’s largest energy supplier reveals impressive managing of the commodity price volatility during cold wave of weather earlier this year
  • Despite a good financial performance, the group is struggling to retain customers
  • The Share Centre recommends Centrica as a medium risk ‘hold’ for investors seeking income

Ahead of today’s AGM, Centrica, the owner of British Gas updated the market to reveal impressive overall financial performance owing to colder than normal weather.

Increased energy demand and the significant commodity price volatility were said to have been particularly well managed during this period. In addition to this, the group has said that it made good progress in its next phase of cost efficiencies and remain on track to meet its targets for 2018.

While it was always expected that Centrica would continue to lose customers due switching options for customers to rivals, the rate of outflow has slowed materially.

Conversely, the cold snap in February and March did indeed add to the cost base through an exceptionally high number of central heating boiler breakdowns.

Moreover, in exploration and production, full year production from Spirit Energy is expected to be lower than originally anticipated due to outages at Morecambe Bay and in Norwegian fields. Centrica also expects that its nuclear power generation will be hit due to an outage of one of the reactors at Hunterson B.

Nonetheless, this was a trading update aimed at pleasing its investors who have suffered significant share price falls over the last few years. For 2018 they expect adjusted operating cash flows to be in the range of £2.1-£2.3bn and £200m in cost saving as part of the £1.25bn per annum cost efficiency programme which will involve headcount falling by around 1,000 during the year.

The other issue overhanging Centrica and the sector is regulatory price controls which management believe is anti-competitive and against the interest of consumers. However, in its planning and forecasting, Centrica is assuming that regulatory price controls will be in place by the end of this year.

The shares offer a very attractive dividend yield around 8%, but the question is how sustainable is this given that these earnings only just cover dividends. We have expressed caution over Centrica in recent years primarily due to some of the issues highlighted above. While this trading update provides some reassurances we still maintain our Hold rating for investors seeking income and willing to accept a medium level of risk.

All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Helal Miah portrait photo
Helal Miah

Investment Research Analyst

Helal has spent time as an independent proprietary trader, trading the US equity futures market. He has also helped manage private client, institutional, retail and hedge funds. His qualifications include the Securities Institute Diploma and the Investment Management Certificate.