Centrica is extending its existing £250million share buyback programme by an additional £300million, buying back 10 per cent of its issued share capital in total.
After reinstating its progressive dividend policy in July, the British Gas owner has also rewarded shareholders with a full-year dividend of 3p for 2022.
Centrica shares rose 3.9 per cent or 3.84p to 102.40p on on Thursday morning in response to profits more than tripling. The group’s share price has risen over 30 per cent in the last year. Back in 2013 the share price was hovering at around the £4 mark.
Buyback: Centrica has revealed it is extending its existing £250m share buyback programme by an additional £300m
Centrica’s adjusted operating profit for 2022 rose to £3.3billion, up from £948million in the previous year. The company benefited from higher oil and gas prices, which were primarily driven by Russia’s invasion of Ukraine.
Profits at Centrica’s energy trading division surged twentyfold to £1.4billion last year, as the group benefited from market volatility. The question for investors is whether this buoyancy can last.
However, retail profits were lower, including a small loss for British Gas Services & Solutions, reflecting weak commercial performance and investment in customer service, support and pricing.
Total group adjusted earnings per share jumped to 34.9p, up from 4.1p a year ago.
The group had adjusted net cash of £1.2billion at the end of 2022, compared to adjusted net debt of nearly £4billion three years ago,
More detail on longer-term investment plans and expected returns will be announced alongside the group’s interim results in July, Centrica said.
Neil Shah, a director at Edison Group, said: ‘Investors will be cheered to hear of the extended share buyback programme of £300million and a dividend for the year of 3p.
‘Centrica’s balanced portfolio and its ongoing investment into the net zero transition will place the company in good stead even after energy prices normalise fully.
‘Centrica announced it will likely focus net zero investments on battery storage, gas peaking generation, solar, hydrogen and carbon capture utilisation over the coming decade in order to support the governments 2030 strategy.
‘The company’s turnaround from £4billion in debt three years ago to a strong cashflow position has lifted the FTSE 100 over 8,000 for the first time.’
With investor sentiment in mind, Keith Bowman, investment analyst at Interactive Investor, said: ‘A final dividend of 3p per share follows the reinstatement of shareholder payouts at the half year results in July, and leaves the shares sat on an historic yield of around 4 per cent.’
He added: ‘For now, and with the consensus analyst estimate of fair value standing at over 130p per share, market opinion currently points towards a buy.’
Shifts: A chart showing Centrica’s share price over the last 12 months
Meanwhile, Russ Mould, investment director at AJ Bell, said: ‘Investors in the company might argue after years of disappointing returns they are due some bumper rewards.
‘However, the fact a big driver of Centrica’s soaring earnings and cash flow is the energy crisis resulting from the war in Ukraine will sit uncomfortably with many struggling to heat their homes.
‘It is fair to acknowledge that most of the company’s record profit came not from its retail-facing British Gas business but from its energy trading division as well as its oil and gas and nuclear assets, but casual observers are unlikely to make the distinction.
‘Whether fair or not the argument will be made the company is taking money out of the pockets of billpayers and doling it out to shareholders.’
Should you invest in Centrica now?
Speaking exclusively to This is Money, Tom Gilbey, an equity analyst at Quilter Cheviot, said: ‘There is important historical context for shareholders to consider when investing in Centrica.
‘If you had invested five years ago, then you would be down about 20 per cent, excluding dividends, while from the highs in 2013, the share price is down around 75 per cent.
‘However, from its Covid lows is has done very well and is up about 150 per cent, so depending on when you invested in Centrica, you may be looking at different outcomes.’
He added: ‘For shareholders, though, the picture has improved in the last few years.
‘The market has seen a consolidation of suppliers and higher gas prices, while Centrica itself has restructured and simplified the business, resulting in a stronger balance sheet.
‘This has meant the reintroduction of the dividend following its suspension in 2020 as a result of the pandemic, and thanks to high energy prices has seen an extension of the share buyback programme.
‘It should be pointed out that the profits announced today are extraordinary, and investors should not expect these levels consistently.
‘While energy prices are high, Centrica will benefit and thus shareholders will be rewarded in the short-term.
‘However, these prices are beginning to come down and will likely return to a normal level at some point in the near horizon.
‘Whilst Centrica looks attractively valued, even on normalised earnings, the increasing calls for stricter windfall taxes, and, while these are unlikely with the current UK government, any change of regime at the next election could see fresh risks for shareholders as it could impact the dividend and share price.’