SILVER BULLETS - Espirito Santo Investment Bank incorporating ...

THIRD QUARTER 2010
Centrica
25.0%
20.0%
15.0%
10.0%
£ per Share
5.0%
0.0%
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
Centrica Storage
7%
Centrica Energy
41%
Direct Energy
11%
British Gas
41%
ROIC Group WACC
2005A 2006A 2007A 2008A 2009A 2010E 2011E 2012E 2013E
2007A 2008A 2009A 2010E 2011E 2012E 2013E
Actual Consensus EPS
Key Metrics (Year to Dec) 2009A 2010E 2011E 2012E 2013E 2014E 2015E
Recommendation Buy Execution adj P/E 13.7 12.0 11.1 9.3 8.5 7.7 7.5
Fair Value 3.75 EPS growth 0% 14% 8% 19% 10% 10% 3%
EV / EBITDA 8.0 6.6 6.1 5.2 4.8 4.5 4.4
Share Price 2.97 FCF Yield 10.9% 6.9% 5.7% 8.8% 11.3% 14.6% 13.6%
Upside / Downside 26.4% Dividend yield 4.3% 5.0% 5.4% 6.4% 7.1% 7.8% 8.0%
DPS growth 5% 16% 8% 19% 10% 10% 3%
Previous Fair Value 3.45 Net Debt / EBITDA 1.6 1.4 1.5 1.4 1.2 1.0 0.9
% change to previous Fair Value 8.7% ROIC 22.9% 18.5% 18.2% 18.6% 18.1% 18.6% 18.4%
SOP DCF/EVA 3.73
Bloomberg CNA LN Equity Key Drivers (Year to Dec) 2009A 2010E 2011E 2012E 2013E 2014E 2015E
T-One CNA-LN
Model Published On 14 Jun 2010 Achieved Power Price (core GBP/MWh) 57.52 48.69 45.60 50.54 53.76 56.34 57.91
Output sold forward (core market) 100.0% 50.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Market Coal Price (core GBP/MWh) 114.95 96.56 96.23 101.79 106.87 111.45 114.20
Market Cap 15,194 Achieved Gas Price (core GBP/MWh) 20.25 14.04 13.87 14.86 16.76 17.67 17.67
Economic Net Debt (ie inc nuclear provisions) 4,976 Achieved CO2 Price (GBP/t) 13.42 12.34 13.25 13.85 14.74 14.78 14.78
Adjustments For Associates & Minorities 63
Enterprise Value 20,233
o/w nuclear provisions 0 P&L Summary (Year to Dec, £m) 2009A 2010E 2011E 2012E 2013E 2014E 2015E
Revenue 21,963 22,716 24,169 25,586 27,789 29,389 30,666
Forthcoming Catalysts EBITDA by division
1H 2010 Results 28 Jul 2010 British Gas 1,061 1,231 1,273 1,407 1,426 1,499 1,535
3Q 2010 Results 17 Nov 2010 Centrica Energy 1,077 1,260 1,493 1,786 1,998 2,228 2,244
Centrica Storage 191 199 191 245 293 286 290
Direct Energy 242 345 342 418 461 506 552
European Energy 0 0 0 0 0 0 0
Other 0 0 0 0 0 0 0
Execution Analysts EBITDA 2,538 3,062 3,325 3,884 4,205 4,546 4,647
Lawson Steele / Andrew Fisher % change -3.2% 20.6% 8.6% 16.8% 8.3% 8.1% 2.2%
(44) 20 3364 6771 / 6773 % margin 11.6% 13.5% 13.8% 15.2% 15.1% 15.5% 15.2%
lawson.steele@execution-noble.com / andrew.fisher@execution-noble.com o/w associates 1 74 77 64 85 109 123
Depreciation & Amortisation (724) (851) (861) (888) (915) (930) (935)
EBIT 1,814 2,211 2,464 2,996 3,290 3,616 3,712
EBITDA Breakdown (2010) % change -8.9% 21.9% 11.5% 21.6% 9.8% 9.9% 2.7%
% margin 8.3% 9.7% 10.2% 11.7% 11.8% 12.3% 12.1%
Net Financials (179) (221) (239) (280) (300) (297) (289)
Exceptional items (454) (50) 0 0 0 0 0
Pre Tax Profit 996 1,940 2,225 2,716 2,990 3,318 3,423
Income Tax Expense (346) (709) (838) (1,074) (1,191) (1,332) (1,386)
Disconitinued Operations 206 0 0 0 0 0 0
Minority Interests 12 12 12 12 12 12 12
Net Income 856 1,231 1,387 1,642 1,799 1,986 2,037
Execution Net Income 1,104 1,281 1,387 1,642 1,799 1,986 2,037
Reported EPS 0.17 0.24 0.27 0.32 0.35 0.39 0.40
Execution EPS 0.22 0.25 0.27 0.32 0.35 0.39 0.40
DPS 0.13 0.15 0.16 0.19 0.21 0.23 0.24
Group ROIC vs WACC Payout Ratio 59.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0%
30.0%
Weighted average shares in issue (m) 5,145 5,145 5,145 5,145 5,145 5,145 5,145
EPS Forecasts vs Consensus (GBP ps)
Cash Flow (Year to Dec, £m) 2009A 2010E 2011E 2012E 2013E 2014E 2015E
Operating cash flow 2,386 2,061 2,208 2,491 2,653 2,872 2,937
Maintenance CAPEX (724) (1,014) (1,341) (1,161) (934) (647) (864)
Free Cash Flow 1,662 1,046 866 1,330 1,719 2,225 2,072
Growth CAPEX (474) (607) (907) (907) (600) (600) (600)
Acquisitions & Disposals + Other (3,010) 2 0 0 0 0 0
Cash used for investing (4,208) (1,619) (2,248) (2,068) (1,534) (1,247) (1,464)
Cash used for financing 143 (227) 40 (423) (978) (1,072) (1,185)
o/w Dividends Paid To Shareholders (635) (655) (761) (825) (978) (1,072) (1,185)
Net Cash Flow (1,619) 215 0 0 141 553 288
Balance Sheet (Year to Dec, £m) 2009A 2010E 2011E 2012E 2013E 2014E 2015E
Cash & Equivalents 1,294 1,500 1,500 1,500 1,641 2,194 2,482
Tangible Fixed Assets 9,650 10,546 11,934 13,113 13,732 14,049 14,579
Intangible Non-Current Assets 2,822 2,822 2,822 2,822 2,822 2,822 2,822
Other Assets 5,676 5,354 5,656 5,951 6,408 6,741 7,006
Total Assets 19,442 20,223 21,912 23,386 24,604 25,806 26,889
Interest Bearing Debt 4,680 5,109 5,911 6,313 6,313 6,313 6,313
Other Liabilities 10,507 10,293 10,554 10,809 11,206 11,494 11,724
Total Liabilities (exc equity) 15,187 15,401 16,465 17,122 17,519 17,807 18,037
Shareholders' Equity 4,192 4,758 5,384 6,201 7,022 7,936 8,789
Minority Interests 63 63 63 63 63 63 63
Total Equity 4,255 4,821 5,447 6,264 7,085 7,999 8,852
Net Debt 3,386 3,609 4,411 4,813 4,671 4,119 3,831
Economic Net Debt (ie inc nuclear provns) 3,951 4,174 4,976 5,378 5,236 4,684 4,396
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