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Eyes Down For Centrica PLC’s Results

gasringCentrica (LSE: CNA) (NASDAQOTH: CPYYY.US), along with other suppliers of electricity and gas, has been hit hard by pre-election attacks on alleged fat-cat greed. As a result we’ve seen the share price tumble 22% since September’s highs, to around 314p today — and that’s a fall of nearly 10% over the past 12 months.

The utilities companies are having to cope with falling consumption at a time when they really can’t put up prices, so eyes will really be peeled for Centrica’s full-year results next Thursday, 20 February.

What’s expected?

Forecasts for the year to December 2013 have been suggesting a small fall in earnings per share (EPS), of 2% to 26.6p — and that’s down from forecasts late last year when we had suggestions of about a penny more.

The dividend is expected to be boosted by nearly 5% to around 17.2p, which would yield 5.5% on today’s share price — but it would drop dividend cover to 1.5 times from 2012’s cover of nearly 1.7 times.

The first-half dividend was raised 6% to 4.92p per share, and that was pretty much in line with those full-year expectations. But that half-time payment was supported by a 2% rise in adjusted earnings to £767m, with adjusted EPS of 14.8p.

At the time, full-year residential gas operating profit was predicted to be in line with 2012, though Centrica did describe the UK business energy market as “challenging”.

Tough Q3

By third-quarter time, Centrica told us that its margins in the residential energy business were under pressure, and should be a bit lower than last year, assuming weather conditions remained normal. There should be “modest profit growth” from British Gas Services, but British Gas Business was said to be in line for “significantly lower” profitability than in 2012.

That update, not surprisingly, was somewhat overshadowed by talk of “intense public and political debate over rising bills”, at a time when wholesale and transport costs are rising.

Overall, this is a pretty rough time for Centrica and its peers, and next week’s results are almost certain to take a back seat to the political wrangling.

Bargain?

And that all makes the shares pretty hard to put a value on right now. The price fall has dropped the P/E to under 12, which on the face of it seems almost criminally cheap for a company paying dividends in excess of 5%. And over the longer term, I think Centrica will prove to be a solid investment — but shorter term fear is controlling the price right now.

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> Alan does not own any shares in Centrica.