Centrica To Post Its Highest Earnings Since 2013; Shares Cheap

We maintain our GBX 140 fair value estimate after no-moat Centrica released a brief trading statement in which it said it expects 2022 adjusted EPS above GBX 30, the highest level since 2013 and above our and FactSet consensus expectations. This confirms that Centrica is the most favorably exposed utility to soaring commodity prices in the short term. Amid a big energy affordability crisis in the U.K., those skyrocketing profits could fuel a public backlash. Nonetheless, we don't expect further political intervention after the increase in the energy levy on oil and gas companies and the implementation of a levy on low-carbon power producers announced last November. On the downstream side, that is Centrica's retail energy business, the wave of 2021/22 bankruptcies of small suppliers serving millions of customers will prevent the government from intervening in tariffs, in our view. Overall, shares are materially undervalued.