Today, I’m looking at the investment case for British Gas owner Centrica (LSE: CNA) and AIM-listed energy consultancy Inspired Energy (LSE: INSE), which has just released its half-year results.

Turnaround on track

Dividend cuts, a shock fundraising and a volatile share price aren’t the type of things investors expect from a ‘boring’ FTSE 100 utility. But that’s exactly what we’ve seen from Centrica in the past couple of years.

The company’s strategy under Sam Laidlaw (chief executive from 2006 to 2014) was to expand the group’s upstream business, an area in which Laidlaw had considerable experience. This strategy worked well for a while, but the underlying risk of un-utility-like volatility from substantial upstream operations was brutally exposed by the collapse of oil and gas prices over the last couple of years.

Current chief executive Ian Conn is in the process of reducing Centrica’s upstream operations and restructuring the company “for customer-focused growth.” As such, ‘new’ Centrica’s earnings, dividends and share price should start behaving more in the relatively steady manner that investors expect from a utility.

In half-year results last month, the company reported “encouraging” progress on implementing its strategy, and increased its cost savings target for 2016 to £300m from £200m. The company’s turnaround looks to be gaining traction, although analysts don’t expect earnings growth to resume until next year.

However, based on the forecast growth, Centrica could prove to be a decent buy at a current share price of 234p. A forward price-to-earnings (P/E) ratio of 14.5 and a prospective dividend yield of 5.4% are attractive for a steady utility — which, of course, is what Centrica is aiming to be.

Growth prospect

Inspired Energy today reported a “strong performance” for the first half of the year, “delivering record growth on all fronts.”

Revenue was 56% higher than in the first half last year at £10.2m from £6.5m. Cash generated from operations was up 34% to £2.55m from £1.91m. Meanwhile, the procurement corporate order book — “which provides strong visibility of revenues and is a consistent guide to the future performance of the [core] Corporate Division” — increased by 69% to £25.7m from £15.2m.

The growth was boosted by two acquisitions in the second half of last year, but the performance is pretty impressive all the same. The acquisitions have been integrated on target and within budget and management is investigating further opportunities to “participate in industry consolidation.”

The criteria management has set for acquisitions look eminently sensible to me and combined with organic growth momentum suggest this business could have a bright future. Major shareholders — who include key directors and notable small-cap institutional investors Miton Asset Management, Hargreave Hale and Slater Investments — would appear to agree.

The shares are trading at 13.75p, and with 480,215,860 shares in issue, the market capitalisation is £66m. I can see little in the way of coverage by City analysts, but annualising the first-half earnings per share of 0.62p gives an attractive full-year P/E of 11.1, and — with year-on-year earnings growth of 24% — an equally attractive price-to-earnings growth (PEG) ratio of 0.46. With a dividend yield in excess of 3% to boot, I rate the stock a buy.

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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended Centrica. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.