The Centrica [CNA.L] share price has been trading sideways for the past month, despite the owner of British Gas being in the best shape it has been in for a long while.
Higher energy prices have sent profits higher, while many of Centrica-owned British Gas’s competitors have gone under after last year’s energy crisis. But does the turbulence in the stock represent a buying opportunity?
What’s happening with Centrica’s share price?
After years of disappointment, Centrica’s share price soared in 2021 as the company appeared to be a solid option during the energy crisis. Over a 12-month timeframe, the stock is up 32.22% and hit a 52-week high of 84.78p on 23 March. However, Centrica’s shares are down 7% year-to-date, having fallen 2.9% last week to close at 76.50p. The question for investors is whether there is any more upside left or if there are further drops ahead.
Why should investors care about Centrica’s share price?
Competitors had been stealing away customers from British Gas for years, depleting its share of the retail gas and electricity market and putting a sizable dent in the stock. Yet, that all changed in 2021 when 33 suppliers went bust during the energy crisis.
Suddenly, Centrica’s sheer scale was an asset as investors bought back into a business that could withstand the crisis. Centrica took on 500,000 new customers from suppliers that had shut shop in the second half of 2021, and 175,000 more customers in January. At the end of April, it emerged that Centrica was in the running to buy collapsed energy supplier Bulb, according to the Sunday Times. With fewer competitors around and more customers, Centrica could see a marked improvement on its bottom line this year.
Is Centrica profitable?
In its 2021 results, Centrica reported an adjusted operating profit of £948m, up 112% from the $447m the previous year, while EBITDA rose 38% to £1.85bn. Revenues came in at £18.3bn, up 23% from £14.9bn. The sale of Direct Energy for £2.7bn significantly boosted Centrica’s balance sheet.
Higher oil and gas prices drove much of these profits, with Centrica’s upstream business delivering operating profits of £573m. The war in Ukraine has boosted energy prices even higher, which could benefit Centrica’s profits in 2022.
Does Centrica pay a dividend?
Income seekers will be glad to note that Centrica’s top brass has suggested the dividend will return in 2022, although this will depend on the company managing to sustain growth.
“[The Centrica board is] very mindful of the importance of the dividend to shareholders, and it remains under active consideration. Whilst the share price increased by around 50%, we are very conscious this was from a low base. We’ve made progress, and many of the building blocks are in place, but we still have some way to accelerate the type of sustainable growth that we strive to deliver,” Scott Wheway, Centrica chairman, said in the company’s annual report.
A reintroduction of the dividend was shelved previously to preserve capital during the beginning of the coronavirus pandemic. In 2019, Centrica paid a total of 5p a share, significantly less than 2018’s 12p. With management signalling that it has some way to go before the business delivers significant growth, a return to 2018 levels seems unlikely even if a dividend is reintroduced.
What are analysts forecasting for Centrica?
The 14 analysts offering 12-month price targets for Centrica have a median target of 87.50p, with a high estimate of 130.00p, and low estimate of 50.00p, with the Financial Times. The median estimate represents a 14.38% increase from Friday’s close at 76.50p.
With three ‘buy’, eight ‘outperform’ and six ‘hold’ recommendations among analysts following the stock, along with one ‘sell’ rating, the majority of analysts are positive on Centrica.
Disclaimer Past performance is not a reliable indicator of future results.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.