Shares in Centrica (LSE: CNA) (NASDAQOTH: CPYYY.US), like those of the UK’s other gas and electricity providers, took a tumble last month when Labour leader Ed Miliband made electioneering noises about capping energy prices.
In fact, over just two days, the owner of the British Gas and Scottish Gas brands lost 30p to fall to 367p, and the price has since slipped further to 360p today — that’s an overall drop of 9%!
Another bullish year
But even after that, the shares are still up 11.5% over the past 12 months, and there’s a likely 4.9% dividend yield to add to it for a total of 16.4%. Over the same period, the FTSE has returned something like 21% including dividends, which is admittedly better than Centrica — but during a spell when what could easily be the government-in-waiting is rattling its sabre, I reckon that’s still a winning performance.
Any price freeze would be short — even in these early pre-election days when political promises are typically at their easiest-to-forget extremes, Mr Miliband is only talking about 20 months. And British Gas has already partially pre-empted any squeeze by announcing a dual-fuel hike of 9.2% from 23 November this year, with next year’s price adjustment still to come before the election.
If political market-bucking attempts are doomed to fail, which in the longer term they are, it really all comes down to Centrica’s own performance — so how has it been doing this year?
Favourable fundamentals
Well, in its first half ended 30 June Centrica saw revenue up 14% to £13.7bn, and that turned into a 9% rise in adjusted operating profit to £1.58bn. Adjusted earnings per share (EPS) rose by a modest 1% to 14.8p, but the interim dividend was lifted by 6% to 4.92p per share — in line with policy, the firm paid 30% of the previous year’s total at the halfway stage.
Looking to year-end, Centrica said that “subject to weather conditions, commodity prices and asset performance, we remain on track to deliver earnings growth in line with expectations for the full year” — current expectations suggest a 3.3% rise in EPS for the year to December.
City analysts are also forecasting a rise of about 4% in the total dividend for that 4.9% yield, which easily beats the FTSE’s forecast average yield of 3.1% — and the shares are on a below-average price-to-earnings ratio of under 13.
And that pretty good six-month performance comes on top of three previous years of earnings growth — even in the crunch year of 2009, EPS remained flat at 21.7p — with steady dividend growth year-on-year.
We have a winner
With the price of their shares up comfortably as we approach the end of the year, and with a very dependable dividend heading their way, I reckon Centrica shareholders easily count among 2013’s investment winners.