Broker view: Why Centrica shares are a ‘hold’

18th February 2016

As Centrica reports its full year results Graham Spooner, investment research analyst at The Share Centre, explains what they mean for investors and why he is calling its shares a ‘hold’…

In its full year results reported on Thursday, British Gas owner Centrica reported a 19% increase in profits at its gas supply business.

These figures may come as a surprise to the market, as most were expecting the relatively mild winter conditions to have hurt the company.

Investors should be aware that electricity and gas prices in Centrica’s core British market have fallen as a result of the fall in commodity prices.

As expected, its oil and gas production unit has suffered from the lowest oil and gas prices in over a decade. Chief executive Iain Conn reiterated that the group expects commodity prices to remain under pressure and this will continue to have an impact on earnings and operating cash.

Centrica also confirmed it would reduce its dividend to 12p a share for the year, which was down from 13.5p in 2014, but in line with previous guidance.

Britain’s energy suppliers continue to face tighter regulation on the back of a competition investigation that could impose a limit on their most expensive energy tariffs.

Investors should appreciate that the group will continue to implement cost saving measures, particularly in its oil and gas division.

Furthermore, the shares are currently up 3% having fallen by around 30% since last summer. As a result, we continue to recommend Centrica as a ‘hold’ for medium risk investors seeking income.

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