British Gas owner Centrica forecasts higher profits

Days after announcing a 7% increase in gas prices, British Gas-owned Centrica has said in a trading update it expects operating profits for 2010 to be ahead of current expectations.

Centrica said it continued to perform strongly in the third quarter, helped by good performances from its business energy division and its upstream operations. Residential gas and electricity consumption was down 2% and 1% respectively, as energy efficiency measures continue to reduce underlying energy usage. But underlying earnings would be hit by interest and tax charges - related to joint ventures and associates - so earnings would only be in line with expectations, subject to the vagaries of the weather and commodity prices. Angelos Anastasiou at Investec said:


The [update] states that 2010 earnings per share look to be in line with consensus, with operating profit slightly ahead of expectations, but countered by higher interest and tax charges. The bigger news was last week's announcement of retail price increases, and the key point is that these should shore up retail supply margins in the first half. Centrica's vertical integration continues to leave the group well placed, and we reiterate our buy recommendation, with our target price unchanged at 403p.


The market is less impressed, with Centrica's shares down 5.2p at 328.2p. Nor are consumer groups happy with the upbeat outlook statement, given the price increase announcement. Audrey Gallacher, head of energy at Consumer Focus, said:


Customers will be baffled as to why they are being told to pay more when British Gas are on track for such huge profits. This begs the question, yet again, of why customers have seen only tiny price cuts when wholesale costs have been so low for so long, yet suppliers hike prices as soon as wholesale costs start to edge up.