Centrica facing further cash flow pressures despite profit rise

Market reacted negatively to the results as the shares dropped 11% in early trading.

Article updated: 21 February 2019 1:00pm Author: Ian Forrest

  • 3% drop of domestic energy customers in November and increased energy caps outweigh rise in full year pre-tax profits with shares falling 11%.
  • Company to focus on cost cutting moving into 2019 in a move to add sustainable growth.
  • Shares are no better than a ‘hold’ for medium to high risk investors.

Centrica faces cash flow problems

The owner of British Gas, Centrica, today reported a rise in full year pre-tax profit from £137m to £575m, but warned pressure on its cash flow would make it difficult for it to meet its target for 2019. Higher commodity prices gave a boost to the company’s oil and gas production business but the number of domestic energy customers fell 3% and in November the company said profits would be impacted in Q1 by the new cap on energy bills. The company plans to reduce costs by £250m in 2019 and also announced the sale of its Clockwork home services business for $300m. The dividend was maintained at 12p.

The shares dropped 11% in early trading in response to the news. That is hardly surprising given the warning on cash flow comes on top of pressures from the energy bill cap and lower than expected income from the company’s share in EDF’s nuclear reactors. All of that combines to raise a big question mark over this year’s dividend payments, and possibly those in future years as well. With confidence in the group and management already at low levels the shares remain no better than a ‘hold’ for medium to high risk investors.

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Ian Forrest

Investment Research Analyst

Ian’s background in investments, financial journalism and research has seen him advising private investors on equities and helping to manage portfolios. His qualifications include the Certificate in Financial Planning and the Chartered Institute for Securities & Investment’s Investment Advice Diploma.