British Gas enjoyed a tenfold increase in pre-tax profit last year on the back of allowances for energy firms to regain losses by charging more through bills.
However, the significant jump, which saw pre-tax profit go from £94 million to £799 million in the space of a year, is unlikely to be repeated in analysts’ views.
“Operationally, we do not see any surprises in today’s results,” Liberum analysts wrote in a note.
“In retail, the 2023 one-off benefits from cost recovery in British Gas Energy have skewed the financials and will not be factored into outlook.”
Such cost recovery had seen regulator Ofgem allow energy suppliers to bill consumers more early on in 2023 in an attempt to reduce debt levels within the industry.
This was through the energy price cap, which determines household bills by setting a maximum suppliers can charge per kilowatt of electricity and gas, alongside daily rates for each.
Much of the benefits were felt by British Gas over the first half of the year therefore, with such strong earnings having driven a wider pre-tax profit of £6.47 billion for owner Centrica PLC (LSE:CNA), compared to a £383 million loss in 2022.
Centrica hiked its full-year dividend from 3p to 4p per share on the better results, which also noted hundreds of millions of pounds had been returned to shareholders in 2023.
Ofgem had proposed late last year that similar allowances be added to April’s price cap, which is expected to fall significantly from January’s, for energy suppliers to recoup debt.
However, as it stands, analysts highlighted British Gas’ guidance for underlying operating profits of £150 million to £250 million per year in the near term.
“The majority of these tailwinds should have been accounted for now, and over the medium term,” Hargreaves Lansdown analyst Aarin Chiekrie explained. “Underlying operating profits from this division are expected to moderate.”
Shares in parent company Centrica climbed 2.2% to 137.35p.