We hold our fair value estimate of GBX 180 for no-moat Centrica CNA after it released 2024 results in line with Factset’s consensus, our expectations, and after announcing its additional £500 million share buyback.
We commend this in light of the undervaluation of the shares, the company’s financial headroom, and limited investment options. As expected, the firm will pay a 2024 dividend of GBX 4.5, 13% above 2023.
For 2025, it intends to increase the dividend by 22% to GBX 5.5. Shares are up by 8% at the time of writing but we see further upside.
Key Morningstar Metrics for Centrica
Centrica Stock vs. Morningstar Fair Value Estimate
Source: Morningstar Direct. Latest price as of 12 PM GMT. Data as of Feb. 20, 2025.
Centrica Sees 43% Earnings Per Share Decline Due to Lower Energy Prices
Adjusted EPS tumbled by 43% from the record 2023 level to GBX 19, a tab below our GBX 20. Main negative drivers were Centrica Energy and residential energy supply whose EBIT plummeted by 60%. The former was hit by lower commodity prices and volatility.
The latter was boosted by a material positive one-off in 2023. Its churn amounted to a modest 1% in 2024 for residential customers. Storage’s EBITA was breakeven, down from a £0.3 billion profit posted in 2023 due to lower seasonal gas prices spreads. On the upside, Spirit energy’s EBIT jumped by 85% on higher achieved gas prices thanks to favorable hedging.
We calculate that the £0.5 billion share buyback will be accretive by nearly 6% on earnings and 1.5% on our valuation. Upon completion of it, the group will have repurchased £2 billion of shares since November 2022, leading to a reduction in the number of shares of nearly 25%.
Centrica’s Net Cash Position Reaches £2.86 Billion
Centrica confirms the divisional 2025 guidance that it gave last November. It adds that it is on track to achieve a run-rate EBITDA of £1.6 billion by the end of 2028, above our £1.2 billion estimate in 2028. Adjusting our estimates accordingly would enhance our fair value estimate.
Adjusted net cash position was £2.86 billion at the end of 2024, below our £3.1 billion but above the £2.6 billion guidance and up from £2.74 billion at year-end 2023.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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