Right now I’m looking at some of the most popular companies in the FTSE 100 to try and establish whether or not they have the potential to push profits up to levels not seen in the last few years.
Today I’m looking at Centrica (LSE: CNA) (NASDAQOTH: CPYYY.US) to ascertain if it can make £2 billion in profit.
Have we been here before?
A great place to start assessing whether or not Centrica can make £2 billion in profit is to look at the company’s historic performance. It would appear that, in the last five years at least, Centrica has never been able to make an annual profit of £2 billion.
That said, the company came close to this milestone back during 2010 but since then, costs have risen and Centrica’s profits have fallen.
But what about the future?
However, Centrica is currently in the middle of a long-term growth plan and the company has all the pillars in place to drive profits higher. For example, Centrica owns British Gas here in the UK, one of the country’s biggest energy providers, giving Centrica a spring-board with which to launch its international expansion plans.
Indeed, Centrica is using its financial firepower to acquire assets around the world and the company’s most recent target is Bord Gáis Eireann, Ireland’s state gas company. Centrica is also expanding into the United States where the firm already has 6 million customers across 14 States and Canadian provinces. Last year, the company brought the energy marketing unit of US oil giant Hess, making Centrica the second largest supplier of energy to businesses within the US. Further, Centrica aims to double profits from its North American arm during the next five years.
Centrica is also expanding its global energy production business, targeting production of 220,000 barrels of oil equivalent each day from its oil & gas fields around the world. To put this in some perspective, 220,000 barrels per day of production is more than double the current output of Centrica’s FTSE 100 peer, Tullow Oil.
Still, Centrica is facing some risks at home in the UK. In particular, the looming threat of a government imposed freeze on energy bills. In addition, some City analysts have suggested that UK power bills will need to rise by £40 per household to compensate for falling consumption and rising costs this year. But this increase is unlikely to go ahead, as it will be required just months before a general election.
All in all, this implies that Centrica’s profits from operations within its home country here in the UK, will come under pressure in the short-term. Nevertheless, the company’s overseas growth plans should drive the company’s profit higher in the long-term.
Foolish summary
Overall, despite troubles at home, Centrica’s drive for growth overseas, especially managements plans for oil & gas production, should help drive the company’s profits higher. So, I feel that Centrica can make £2 billion profit.