British Gas Owner Centrica PLC Reports Drop In Profits

gasringThe share price of Centrica (LSE: CNA) (NASDAQOTH: CPYYY.US) fell by 5p to 309p during early trade this morning after the energy company revealed a drop in profits for 2013, hampered by warmer weather, higher wholesale energy costs and households switching to other suppliers.

Over the last 12 months the share price has lowered 11%.

British Gas, which is owned by Centrica, posted profits of £571m, down 6% on £606m a year earlier. Centrica added that the number of British Gas customers declined by 2% in 2013 to 15.3m.

The size of British Gas’ market share and its retail margins have been scrutinised by press and politicians lately, while customers have been angered by rising energy costs, which increased 9% in October (although prices were cut 3% beginning in January). This led Centrica’s chairman, Rick Haythornthwaite, to counter “the reputation of British Gas in the eyes of our customers is vastly better than one would be led to believe, particularly when it comes to our service engineers helping customers in their homes”.

In total Centrica saw a 2% dip in operating profits to £2.7bn. Revenue rose 11% to £26.6bn.

Centrica chief executive, Sam Laidlaw, commented:

“Market conditions are set to remain challenging in 2014 with margin pressures and unusual weather patterns on both sides of the Atlantic, rising unit costs in the North Sea and weak economics for gas storage and gas-fired power generation. However in the short term, we are focused in our downstream businesses on improving service levels, reducing costs and returning to growth through innovation, technology and customer propositions. Upstream, we will continue to drive efficiencies and will be increasingly selective in our investments, focusing on the projects that offer the best returns and the lowest political risk.”

Earnings per share for 2013 come in at a little shy of 30p, while the full year dividend per share amounted to 17p.

Therefore, after this morning’s shift in share price, Centrica shares may trade on a P/E of 10 and offer an income of 5.5%.

The decision to buy — based on those ratings, today’s results and the wider prospects of the energy sector — is, of course, your decision only.

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> Mark does not own shares in any company mentioned.