Centrica: Shares soar after UK autumn statement

Centrica, Daily

In the latest autumn statement, the UK Chancellor of the Exchequer Jeremy Hunt mentioned that the windfall tax on profits of oil and gas companies will be increased significantly (from 25% to 35%). The measure is valid until March 1, 2028. In addition, from January 1 next year, a 45% tax rate will be imposed on the income of low-carbon power generation companies (wind power, nuclear power). The two measures are expected to generate around £14bn in revenue for the 2023/24 financial year.

Shares in Centrica, the parent company of Britain’s largest energy supplier British Gas,  extended gains and retested four-month highs following the announcement. Some analysts mentioned that the surge in shares of local energy companies could be due to a shorter-than-first-expected extension of the tax deadline. In addition, the cost of generating electricity from gas-fired power plants is used as a benchmark for UK wholesale electricity prices. So higher wholesale prices actually benefit renewable energy companies and nuclear power generators.

Despite this, the OBR (Office for Budget Responsibility) confirmed a recession in the UK and pessimistically predicted that the UK economy would not return to pre-pandemic levels until the end of 2024. The recession has adversely affected many industries, including oil and gas. Prices fell as demand slumped, reducing revenue for these companies. Tighter credit conditions will cause explorers and producers to pay higher interest rates when raising capital, hurting future earnings.

According to Centrica’s latest interim results in July 2022, the company has achieved impressive results. This includes an adjusted operating profit of £857m (£140m in 2021), an increase in adjusted EPS to 10.2p (1.3p in 2021), net cash of £316m in H1 2022 (net debt of £93m), and free cash flow from continuing operations of £643m (up 22.71% year-on-year).

Technical Analysis:

#Centrica is showing a strong rebound in Q4 2022. After finding support above the H1 2022 low (£0.6564), the company’s share price rose sharply to a high of £0.9616, its highest level since June 2019. As of Friday’s close, #Centrica remained under pressure below the resistance zone of £0.9350 (£0.9550.) A close above this area would allow the bulls to continue testing the June 2019 high at £0.9700 and then £1.0600. Instead, technical pullbacks should focus on support at £0.8800, £0.8300 and then £0.8000.

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Larince Zhang 

Market Analyst

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