The Centrica (LSE: CNA) share price has had a storming 12 months, gaining 83% in a period when the FTSE 100 advanced by only 5%. But that doesn’t tell us anything close to the whole story, with Centrica shares still down 56% over the past five years.
The company’s profits have collapsed over that five-year period. And that led to the company slashing its dividend in 2019, and then suspending it altogether in 2020 as it slipped to a pre-tax loss. Despite a return to profit in 2021, the dividend remained absent.
That changed on Thursday, as Centrica announced a first-half dividend of 1p per share. The company described it as a reinstatement of progressive dividends, expecting cover by earnings to reach two times, “over time“.
This latest interim dividend was well covered, with earnings per share (EPS) recorded at 11p. So that implies steady dividend progress in the coming years.
Centrica shares dip
Investors didn’t seem over-impressed, though, with the Centrica share price dipping 3% in morning trading. Maybe they were expecting a bigger dividend from the British Gas owner?
But soaring energy prices are very much behind the company’s strong first-half results. And I think it’s wiser to wait and see how long-term pricing settles before committing to bigger payouts.
Besides, any sign of Centrica shareholders looking like fat cats taking the cream while people struggle to pay their fuel bills could lead to calls for further windfall taxes. The existing Energy Profits Levy will surely have already had an effect on investor confidence.
Profits rise
Centrica’s earnings soared in the first half of 2022. Adjusted group EBITDA climbed nearly two and a half times to £1.6bn.
And that 11p-per-share EPS is nearly six and a half times the figure recorded for the same period last year. Admittedly, last year was an unusual one too, but it just reinforces the uncertainty of the times we’re in right now.
Centrica did talk about a strong operational performance, though. So these results are probably not solely down to the price of oil and gas.
The company expects full-year EPS to be at or above the top end of analysts forecasts — “if forward commodity prices were to stay around current levels and asset performance remains strong“.
Good value?
On that basis, we’d be looking at a year-end price-to-earnings (P/E) ratio of under six. On the face of it, that does look cheap. But I really don’t expect oil to remain above $100 per barrel in the long term. And that makes long-term valuation tricky.
So would I buy Centrica shares now? I think there’s potential for the price to rise further in the coming months. But if we face a severe winter energy crisis, we’ll most likely see serious political pressure to do something about it. And that could cost the energy companies.
For now, at least, I’m going to keep watching. And I don’t think I’d buy until I can get a clearer picture of what Centrica might look like in more normal times.