Centrica had a tough time last year. Not as tough, arguably, as its customers who had to wear big rises in energy bills. But it was only thanks to a quirk in the company tax situation that allowed Centrica to file a profits rise last year. Posttax earnings were 5 per cent lower in 2006 on 2005.

Centrica lost money in its residential energy supply business in the first half of the year, and it made only a modest £95 million in the whole period thanks to a second-half recovery. Centrica also lost more than a million customers — or about 6 per cent of the total. Although this was not the chief reason for the profit slippage, it does nothing to bolster the notion that this is a company in rude health.

Centrica’s central difficulty is that while it does own some gas in the ground, notably in Morecambe Bay, it does not have enough to supply its 16 million customers. When gas and electricity prices swing, it can get caught on two fronts. It loses out because the price at which is buys gas cannot be relied on to match up with the price at which it sells. In other words, it suffers a classic middleman squeeze.

Attempts to reduce its exposure to financial loss, meanwhile, mean it may end up offering customers uncompetitive prices. And if it does that, customers will walk, as they did in droves last year.

In the circumstances it is surprising to see Centrica shares thriving as they have. Stock is up just over 30 per cent since Sam Laidlaw, the chief executive, took office last July. Some of the advance can be put down to takeover speculation. The rumours starring Gazprom as a possible bidder for the company have wilted, but energy industry consolidation marches on apace. Plenty of gas production companies could view a purchase of Centrica as an ideal way to secure a captive customer base.

But investors also seem to be showing appreciation for the new approach adopted by Sam Laidlaw. Aside from himself, there are several other fresh faces in the boardroom: Nick Luff, the former chief financial officer at P&O, the shipping group, is the lastest recruit coming in to replace Phil Bentley, who moves to be managing director of Centrica’s British Gas subsidiary, as finance director.

It is hoped that a round of cost-cutting will help reduce the exposure to swings in gas prices. It ought to widen the margin for error. If the cost-cutting also increases efficiency, which it may, Centrica could also become more responsive to changes in world energy prices.

Centrica is also keen to strike long-term supply deals with producers, it is embracing LNG, and hopes to increase its own gas resource to the point where it can supply 35 per cent of its customers, up from the 20 per cent at present. A US residential business also provides possible growth opportunities. Buy.

Ladbrokes

Any pleasure felt by Chris Bell, the Ladbrokes chief executive, at delivering record annual results must have been diminished by the market’s rather underwhelmed reaction. Nigel Parson, at Evolution Securities, went as far as to describe the numbers as “teetering on the edge of being very poor”.

That is a little harsh, but it is certainly true that top-line growth is slowing while costs keep rising. The 6 per cent fall in UK betting shop profits was disappointing given the strong World Cup, but a weak autumn meant those halcyon weeks were soon forgotten.

Management is working hard to ensure its betting shops offer punters a state-of-the-art experience, investing more than £50 million a year in improvements. The roll-out of the new generation of fixed-odds betting terminals should provide a boost this year, while the change in the law allowing year-round evening opening should help.

But Ladbrokes’ growth prospects appear to rely on expansion of its international and internet gambling operations. While the proposed acquisition of 888 Holdings would boost its online presence, there is still scepticism of the potential of its overseas developments.

The shares, off 9½p at 432p, may tread water pending greater clarity in both areas. But they are worth holding.

CSR

CSR seemed to be back in favour yesterday. After two disappointing updates that ravaged the share price last year, its fourth-quarter update was more upbeat, talking of positive trends and diversification. The shares rose 57½p to 806½p.

The Cambridge-based maker of Bluetooth chips, used to pass data wirelessly between mobile phones and other devices, said last year’s glitch in demand had passed. The outlook is rosy and 2007 should prove a strong year for the Bluetooth market.

The company, also the market leader, is becoming less reliant on mobile phones, placing its chips in Sony’s PlayStation 3 among other things. Diversification into GPS chips, through acquisition, will also enable it to cling on to or claw back profit margins.

CSR is reducing risk for investors. However, for all its steps in the right direction, it remains a highly volatile stock. That was illustrated by yesterday’s share price move.

Bluetooth has, at least, a solid near-term future. But what if an alternative — a cheaper one — emerges? The danger is not necessarily that Bluetooth will be wiped out by a rival but that its dominance may be weakened. The volatility of CSR’s shares suggests that even that eventuality could prove costly for investors. In the absence of a dividend to provide support, sell.

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