Should Centrica do more to help after record profit?

Centrica’s share price jumped almost 6% on Thursday last week to head the FTSE 100 leaderboard, after the British Gas owner unveiled a record full-year profit of £3.3bn, and announced a new £300m share buyback plan. But should energy firms making record profits do more to help vulnerable customers in the cost of living crisis?

The Centrica [CNA] share price topped the FTSE 100 risers on Thursday 16 February, helping the UK blue chip index close above 8,000 for the first time.

This came after the British Gas owner unveiled a record profit of £3.3bn in its full-year figures, largely driven by Russia’s invasion of Ukraine prompting a huge rise in wholesale energy prices. Shares leapt 5.72% on the results. The energy utility company also announced a fresh £300m share buyback plan.

Energy companies’ headline numbers – energy giants Shell [SHEL] and BP [BP] have also reported huge profits – has thrust the sector into the spotlight, with accusations that they are making a killing out of the cost of living crisis. Many people are asking: should energy companies making record profits from high wholesale gas and power prices be doing more to help vulnerable households confronted with soaring energy bills and high inflation?

Centrica share price comes to a boil

After last week’s 7.04% rise to 105.05p at Friday 17 February’s close, Centrica shares have risen 36.77% over the last 12 months, 59.70% more than a 52-week low of 65.78p in October, boosted by two profit guidance upgrades in the last three months. The stock also notched a 52-week high at 106.15p intraday on Friday.

The CNA share price has now more than tripled since slumping to almost 30p in April 2020, after the UK entered its first coronavirus lockdown, but the shares are still a long way from previous highs, which were well above the 300p level.

Centrica announced a huge leap in full-year operating profit, to a record £3.3bn for 2022, thanks largely to the performance of its North Sea gas production, nuclear power and energy trading divisions. The jump in operating profit is even more stark when excluding the company’s now disposed-of Spirit Energy assets, coming in at £2.8bn versus £392m in 2021, and well above consensus expectations. The stellar numbers saw Centrica extend its £250m share buyback programme, launched in November, by a further £300m.

Forced prepayment meter fiasco fuels discontent

Centrica hit the headlines for all the wrong reasons recently, following revelations by the Times of forced installations of prepayment meters in the homes of vulnerable British Gas customers. Last week’s results were hardly likely to shift the spotlight away from the company.

The Institute for Public Policy Research’s George Dibb called Centrica’s profit “scandalous”; he wants to see a new tax introduced on share buybacks, reports the Financial Times. End Fuel Poverty Coalition coordinator Simon Francis said Centrica’s profit was built “on the backs of older people, young families and the disabled suffering in cold damp homes this winter”.

Greenpeace’s head of UK climate, Mel Evans, focused on Centrica’s trading division, which made a whopping 20-fold increase in operating profit to £1.4bn, reports the Financial Times. She believes the government “should expand the windfall tax immediately and use the money to fund home insulation, energy bill support and green heat”.

Centrica CEO calls for wider debate

The company paid around £1bn in tax, versus £433m in 2021, following the government’s introduction of the windfall tax, and said it had invested more in helping customers with energy bills than the £8 profit per customer after tax it made from its British Gas energy division.

Despite that, the firm’s huge profit and prepayment meter PR disaster means it remains under the spotlight. Investec analyst Martin Young opines that the “PR course that Centrica has to navigate has arguably got harder”. Centrica reckons it’ll pay about £2.5bn in UK windfall taxes though to 2028.

Centrica CEO Chris O’Shea acknowledged the issue, but called for a wider debate on how to tackle the cost of living crisis, saying “this is not something that can be solved by British Gas, it’s not something that can be solved by Centrica, it’s something that really requires industry, government and regulators to work together”.

Analysts positive on CNA share price

The 14 analysts offering 12-month price targets for Centrica shares have a median target of 132.50p, with a high estimate of 170.00p and a low estimate of 50.00p. The median estimate suggests a potential upside from last week’s 105.05p close of 26.13%.

This positive outlook is supported by the 17 brokers offering recommendations on the FTSE 100 listed stock, as collated by the Financial Times. Five analysts rate Centrica shares as ‘buy’, 10 ‘outperform’ and two ‘hold’, with no ‘underperform’ or ‘sell’ ratings.