The heat is on for energy companies as high prices drive up profits

HA helpless guy in a woolly cream jumper and 1980s mustache rushes out of the village pub, runs over a postman on a bicycle and enthusiastically approves of British Gas’s actions. This remembered scene came from the 1986 Tell Sid TV advertising campaign, which encouraged the public to embrace the privatization of the energy supplier, and its echoes will be felt this week.

British Gas owner Centrica will announce its first-half results on July 28. It’s a critical day in the energy industry, with the oil giant shell revealing its second quarter figures, and National Grid planning to release its first outlook for winter electricity supply.

Centrica’s dividend decision could take center stage. For the roughly 500,000 remaining retail investors who bought at the time of the Tell Sid campaign, the company has built a reputation as a reliable dividend payer.

However, payment has become less reliable in recent years. In 2019 former boss Iain Conn cut the dividend after the introduction of energy price caps, and in 2020 the divi was suspended to preserve cash in the early stages of the pandemic. Then, in February, the company reported skyrocketing profits, refunded £27million in furlough funds and new boss Chris O’Shea waived his £1.1million bonus while indicating that the dividend was on its way back.

But rising bills and the cost of living crisis mean paying cash to shareholders is likely to provoke a public backlash.

City analysts seem confident that the payment will now return to some level. Deepa Venkateswaran, senior analyst at AllianceBernstein, predicts the company will offer a “modest” dividend of around 3p per share this year, worth around £175million.

She said: “Paying a dividend now is far less controversial than it would have been, as the company is now in a much better financial position.

“Holiday money was refunded, Centrica did not complain about the exceptional tax [on oil and gas firms] And it’s not making profits on the bills: the price of gas is just high. It won’t be a stunning dividend and it seems justified.

Investec analyst Martin Young simply remarked, “If not now, when?”

A spike in gasoline prices is expected to have boosted profits and the company has cut jobs and spending during the pandemic. Operating profit is expected to be around £1.3bn, up from £262m in the same period last year.

Beyond the dividend deliberations, O’Shea can give an indication of how much winter the company expects consumers to have. Any provision for bad debts, from customers unable to pay their bills, will be closely monitored.

Centrica’s British Gas subsidiary hopes to retain the 700,000 customers it has taken over from failing suppliers since the start of the energy crisis. Investors will also be keen to see any signs of progress in negotiations with the government over the reopening of its raw gas storage site in the North Sea.

Shell’s update is expected to highlight the reasons behind the energy profit tax the government imposed on North Sea oil and gas operators in May. The company posted its best quarterly profit in a decade, at $9.1 billion in the first quarter, and HSBC analysts estimate profits could reach $12 billion.

Onlookers will be watching closely for comments on investment in the UK – in light of the windfall tax – as well as the outlook for the gas market given the shortage of supply in Europe. Chief executive Ben van Beurden could also decide to weigh in on the high petrol price debate, after competition watchdog concerns raised over refining margins.

National Grid’s update will be designed to help the electricity industry prepare for winter. It should outline likely supply issues and forecast likely margins before further assessment in the fall. However, any forecast could become widespread quickly if Russia chooses to cut gas supplies.

Britain may be basking in the sun, but clouds are already forming on the energy industry’s horizon.

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