What Will Happen To Centrica PLC’s Slice Of The UK Energy Market?

Will Centrica PLC (LON:CNA)’s market share be eaten away by competition?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

gasringThe UK energy market is the most competitive in Europe. In other European countries, the state owns a large stake in the companies. For example, EDF (Électricité de France) is largely owned by the French government; they owned approximately 85% by the end of 2008. The British market is the prime example of free market capitalism.

What does this mean for Centrica‘s (LSE: CNA) British Gas? In a nutshell, probably that its share of the market will gradually decline for gas and electricity. As of 2012 British Gas had 20 million business and domestic customers, SSE had 9.6 million customers, npower had 6.5 million customers, EDF had 5.7 million customers, E.on 5.3 million customers and Scottish Power had 5.2 million customers.

British Gas’ share of the domestic gas market is now under 40%. Other companies seem to be targeting the gas and electricity market aggressively, and in different ways to British Gas. For example, npower sponsored the Football League, and E.on the FA Cup. All the other big six companies also advertise heavily on TV. There is the added threat of new smaller energy companies offering cheaper prices. I’m with First Utility, who are the cheapest for my usage in my area. 40 per cent of switches in January 2014 were to a smaller supplier.

What I would say based on personal experience, however, is that there is an amount of brand loyalty towards British Gas. Some people take the view that they always have been supplied by British Gas and always will. I know it’s a generalisation, but a large proportion of these people are over fifty. Since energy bills are such a popular news topic, and affect so many people I predict that the amount of people switching will only increase.

Here are the key British Gas results for the year ended 31 December 2013:

 

FY 2013            

FY 2012                   

Change

H2 2013      

H2 2012    

Change

Adjusted operating profit (£ million)

 

 

 

 

 

 

Residential energy supply

571

606

-6%

215

261

-18%

Residential services

318

312

2%

183

187

-2%

Business energy supply and services

141

175

-19%

63

82

-23%

Total British Gas operating profit

1,030

1,093

-6%

461

530

-13%

So I think we can describe British Gas’s share of the UK energy market as managed decline. Overall I would say that its customer service has improved over the past ten years, and employees are treated well.

Remember, though, British Gas is only one part of Centrica. Centrica is making efforts to expand into the USA, in terms of both increasing customer numbers and storage and supply capacity. At the current share price of 312.3p, with a yield of 5.44% and a P/E ratio of 13.1, Centrica is at least a solid hold, and a reasonable buy for a long-term ‘buy and hold’ investor.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Mark Howitt owns shares in Centrica and SSE. The Motley Fool has no position in any of the shares mentioned.

More on Investing Articles

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »