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Centrica’s shares tumbled on Thursday as it announced a share buyback that fell short of market expectations and warned of a “challenging” investment environment in green energy.
The FTSE 100 owner of UK household energy supplier British Gas said it would extend its share buyback programme by about £200mn, on top of the roughly £1bn it started in November 2022.
But this fell short of the £300mn expected by analysts, sending the shares 9 per cent lower to 130.5p, valuing the company at about £6.8bn, by late morning in London.
The company also announced an interim dividend of 1.5p a share, higher than the 1.33p during the first half of 2023.
Analysts at Citi said the buyback “looks a bit light compared to our expectations”, while analysts at RBC agreed “the headline number for the buyback we think comes in below market expectations”.
The group said chair Scott Wheway, who has been in the role for five years, would step down. He will be succeeded by non-executive director Kevin O’Byrne in December.
As well as British Gas, Centrica owns a 20 per cent stake in Britain’s nuclear power fleet and gas-fired power plants, North Sea gas wells, the Rough gas storage site and some solar and battery plants.
It announced adjusted operating profits of £1bn, roughly half the £2bn it made during the first half of 2023.
However, the latter was an exceptional figure driven by the recovery of costs at British Gas connected to the energy crisis when wholesale gas and electricity prices surged.
Chris O’Shea, Centrica’s chief executive, said there were now “more normalised market conditions” and the business was delivering “in line with our expectations”.
The company has set out a “green-focused investment strategy” through which it wants to invest about £600mn-£800mn a year until 2028 in assets such as wind and solar farms and gas-fired plants, which can provide back-up on windless days.
However, O’Shea added that investment had been “slower than we hoped” during the first half of the year, owing to a “more challenging” investment environment. The company had turned down some opportunities because of inadequate returns, he added.
“I always want things to go faster. I want to deploy this capital but we will be disciplined. The projects have to be right, the returns have to be right. And unfortunately some of the projects we progressed in the first half of the year didn’t meet our criteria, so we rejected them.”
Rising interest rates over the past few years have affected returns for renewable projects, as have falling power prices in some markets. Statkraft, Norway’s state-owned utility, and others have scaled-back renewable investment plans in recent months.
Centrica has recently invested £70mn in Highview Power, a liquid-to-air electricity storage plant developer, which is building its first large-scale plant in Carrington, Greater Manchester.
O’Shea reiterated the company’s interest in investing in the Sizewell C large-scale nuclear project in Suffolk, which is being developed by France’s state-owned EDF alongside the British government.
