Centrica PLC Is Set To Profit From Growth Overseas

Ofgem’s call for an inquiry into the UK energy market has worried Centrica (LSE: CNA). Indeed, Ofgem has questioned whether vertical integration is in the best interests of customers — potentially opening the way for a break-up of Britain’s big energy groups.

Now, Centrica is one of the UK’s most vertically integrated energy suppliers. In particular, Centrica produces gas, transports gas, stores gas, pumps gas into customers’ homes and installs heating equipment.

So, with Ofgem’s break-up threat still ringing in Centrica’s ears, the company is trying to growth overseas.  

Focus for Growth
centrica / sse

Centrica’s management is targeting the American dream, focusing on growth within North America, to reduce the company’s dependence on the UK energy market.

For example, Centrica is aiming to double profits from its North American arm during the next four years and spear heading this plan is Direct Energy, Centrica’s North American subsidiary. Direct Energy operates within 46 U.S. states plus the District of Columbia and ten provinces within Canada.

All in all, Direct Energy has 6m customers and the company has recently stepped up its plans for growth, trying to tempt new customers towards the company with bonuses, if they sign up for new residential energy services.

What’s more, Centrica’s management has been hunting for bolt-on acquisitions within North America, to compliment the company’s offering within the region.

As a result, 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.

Benefiting from peer’s troubles

Many analysts suspect that Direct Energy will report a surge in customer numbers during the next few months as Texas’ largest retail power supplier, Energy Future Holdings Corp. has collapsed, leaving 1.7m retail electricity customers ripe for poaching.

Centrica would be mad to pass up this opportunity. You see, Texans consume more power per head than any other state within the US. Each household pays about $1,801 a year for electricity, compared to a countrywide average of $1,200 — these customers are worth poaching.

So, to capitalise on this trend and snap up as many new customers as possible, Centrica’s Direct Energy, has started to offer new, or renewing customers up to $400 in gift cards.


Still, Centrica is not content with its US expansion plans and continues to search for other growth avenues. In particular, the company has teamed up with two private equity firms to pay £920m for assets of Ireland’s state-owned Bord Gáis.

Bord Gas Energy’s business in Ireland has about 650,000 residential gas and electricity accounts and 30,000 business accounts, as well as the Whitegate gas-fired power station in County Cork.

Additionally, Centrica has been investing in shale gas projects across the UK.

Overall, Centrica is facing headwinds within the UK but the company’s plans to expand within the US should help drive growth across the group. 

Utility companies like Centrica are often thought of as the best investments for the long-term, due to their impressive dividend yields and defensive nature.  Centrica itself, has an impressive dividend track record and the company's current dividend payout is well covered by profits.

A company that can continue to deliver its dividend payout in bad times as well as good, is one of the five rules for creating dividends for life. To find out what the other four rules are, click here to download The Motley Fool's free report entitled 'How To Create Dividends For Life'.

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Rupert does not own any share mentioned within this article.