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 Reports and Commentary from the Investment World

Reports and commentaries are posted here on a regular basis.


Centrica Plc


Centric Plc (CNA:LSE)

Centrica is a utility group made up of integrated energy companies with growing businesses in the UK and North America. The company sources, generates, processes, trades and stores energy. Downstream Centrica supplies gas and electricity to millions of homes and businesses and offers a distinctive range of home energy solutions and low-carbon products and services.

Centrica was born out of the demerger  from British Gas plc in 1997. It now operates in the UK, Canada, USA, Norway, Germany, The Netherlands and Nigeria. but also owns assets in Trinidad and Egypt and have outsourced operations in South Africa and India. Its core retail brands are British Gas, Dyno and Direct Energy.

This is a BIG blue chip company and has a market capitalisation around £16.76bn and group revenue exceeding £21.96bn. Currently the shares are trading on a p/e of 14 and paying a dividend yield of 4.14%.

Centrica had a strong third quarter, with operating profit forecasts ahead of current market expectations, though earnings per share will likely match estimates. British Gas is doing well in the current economic climate. The number of residential energy accounts on supply is up 270,000 since the start of the year, while services accounts have jumped 181,000. It's also making good progress towards its strategic priorities set out earlier this year. The government’s scrappage scheme was good for the boiler installation business. It put in 29% more of them in the first ten months of 2010.

There’s also good news at the business energy supply and services division, which remains on track to deliver “substantially” increased year on year profit. It’s been a “strong” production period for the upstream UK business production, with gas and oil volumes for the full year seen up 50% on 2009, reflecting the acquisition of Venture and increased volumes from Morecambe.

In North American, residential and business energy supply has made good progress, Centrica says, both operationally and financially.

At the end of September, British Gas, the UK’s largest supplier of low carbon, energy efficient products and services and Mears, a leading provider of repairs and maintenance services to the social housing sector, announced a strategic partnership to bid on repair and maintenance contracts in the social housing sector. The partnership will see British Gas delivering energy services as well as providing access to Carbon Emissions Reduction Target (CERT), Community Energy Saving Programme (CESP), Feed-In Tariff and Renewable Heat Incentive funding, to subsidise energy efficiency measures and renewable and low carbon technology. As a result, British Gas and Mears will be able to target CERT and CESP funding opportunities within Mears’ existing and growing Social Housing client base. The Partnership will also offer a wide range of microgeneration installation and maintenance services across the 500,000 Social Homes Mears currently works with.  These include whole house solutions which may include air and ground source heat pumps and biomass boilers as well as solar panels.By combining the capability and resources of these two companies, the partnership should create efficiency opportunities for Local Authorities and Registered Social Landlords during a time of budget constraint. 
In October, Centrica announced that its British Gas division acquired a 15.96% stake in AlertMe, a UK based company that provides home energy management services, for £5.7 million in cash. Following this transaction, British Gas will also hold a seat on AlertMe's Board. As part of this investment British Gas has signed a commercial agreement, potentially worth over £20 million to deploy AlertMe products and services to its customers in the UK, helping them to save energy and providing smarter ways to take control of their energy use. This acquisition will enable British Gas to further expand its position in smart technology and enhance its service offering. British Gas customers will gain access to new products such as AlertMe's Home Area Network (HAN) platform, which allows users to manage and control a wide range of home activities and appliances over the internet or smart phone. British Gas is also leading the roll-out of smart meters and has the largest smart meter deployment in the country, with over 160,000 smart meters installed to date.
Centrica seems to be heading in the right direction with sensible acquisitions and innovative partner alliances. Utility companies are seen as defensive investments and Centrica could be a good investment for the more cautious investor. The dividend of over 4% is attractive at a time of low interest rates and there is plenty of upside potential for capital appreciation too.

Buy Centrica Plc up to 315p


Disclaimer: All the information above is provided as a service for individuals and institutions. It should in no way be construed as a recommendation as an investment. Investment decisions should be based on the risk tolerance and planning horizon of the investor. Market participants must understand that past performance is also not a guarantee or predictor of future results.