Up 20% this year, can results keep the Centrica share price going?
The Centrica (LSE: CNA) share price gained 1.4% this morning (24 July), after the company reported falling first-half profits.
Adjusted operating profit fell to £549m from £1,035m in the first half last year, while adjusted EBITDA dropped to £900m from £1,437m.
The update said: “The first half of 2025 has seen more challenging conditions … with lower commodity prices and spreads impacting our Infrastructure businesses.” Warmer weather also took its toll.
Shareholder returns
The company lifted its interim dividend 22% to 1.83p, saying it expects the full-year payout to grow by the same percentage to 5.5p. Cover by earnings should “move to around 2x by 2028.” On top of that, the current £2bn share buyback continues, with £0.5bn outstanding by the end of June. It should be complete by the end of 2025.
Does Centrica sound like a cash cow? We must remember the forecast dividend yield is only a modest 2.8%, with plenty of bigger ones to be had. Still, share buybacks should lift future per-share earnings and dividend measures.
Centrica has probably one of the clearest views of likely future financials than most in the FTSE 100. Many investors wisely priortise long-term dividend dependability over short-term higher yields.
And with the Centrica share price up 240% in the past five years, shareholders have done well.
Some uncertainty
No dividend can ever be guaranteed. And the outlook is still a fair way from certain. Among its current risk factors, the company names “US tariffs, EU regulation, and geopolitics“.
But there’s a bit of diversification away from gas. Centrica has agreed to take a 15% stake in the UK’s new Sizewell C nuclear project. Its total funding obligation is capped at £1.3bn. And the board predicts a 10.8% return on equity in the early stages.
That does highlight the main long-term concern. The world will presumably get back to moving away from fossil fuels eventually. I just don’t see the end of oil and gas coming any time soon. Possibly not for a good few decades yet.
Still good value?
Despite that cracking five-year performance from the share price, we’re still only looking at a forecast price-to-earnings (P/E) ratio of 12. And if we account for the £1.9bn net cash predicted for the end of 2025, we’d get an enterprise-adjusted P/E of only nine.
On that basis, the stock looks temptingly good value to me. But against it, forecasts indicate a 12.5% decline in earnings per share between 2025 and 2027. That could raise the P/E close to 14 by then. And still around 12.3 if we adjust for predicted net cash, falling to £860m.
Back to the bright side, dividends are expected to grow 33% over the same two-year period. And even if earnings decline as predicted, we’d still see cover of about 1.6 times. That might make me a bit nervous. But it depends on how the outlook develops over the next few years.
If the future turns upwards, Centrica could still be undervalued. I reckon it’s one worth considering for investors seeking long-term stability — but with a careful eye on the next year or two.
The post Up 20% this year, can results keep the Centrica share price going? appeared first on The Motley Fool UK.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
