Is There Still Time To Buy Centrica PLC?

Can Centrica PLC (LON: CNA) move higher, or are the company’s shares overvalued?

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Right now I’m looking at some of the most popular companies in the FTSE 100 and wider market to try and establish if there is still time for investors to buy in.

Today I’m looking at Centrica (LSE: CNA) (NASDAQOTH: CPYYY.US) to ascertain if its share price has the potential to push higher.

Current market sentiment

The best place to start assessing whether or not Centrica’s share price has the potential to push higher is to take a look at the market’s current opinion towards the company.

centrica / sseUnfortunately at present, it would appear that the market is somewhat wary of Centrica’s future, as, after months of speculation and investigation, the energy regulator Ofgem recently referred the UK’s energy industry to the newly created Competition and Markets Authority for a full investigation.

Ultimately, this investigation could lead to the break-up of Centrica and its peers, the prospect of which is unattractive to many of Centrica’s investors. However, it would seem as if there are still plenty of reasons to buy Centrica’s shares, despite this somewhat major setback.  

Upcoming catalysts

Obviously, the most important catalyst for Centrica’s shares is likely to be the result of the Competition and Markets Authority’s investigation into the industry, although this decision is not expected for some time — around two years, to be exact.

So, while investors and Centrica’s management wait for the Competition Authority’s final outcome, Centrica has focused its energy on expanding the company’s overseas presence. This overseas expansion should help reduce the company’s dependence upon the UK’s domestic market.

For example, within Centrica’s recently reported full-year 2013 results, the company revealed that the group’s international gas exploration & production business had seen profits jump 23% during the period. In addition, Centrica has a stake in UK shale exploration and the company has, during the last few weeks, lead a group that acquired Bord Gáis Eireann, part of Ireland’s state-owned energy company.

What’s more, Centrica is expanding into the United States where the company already has 6 million customers across 14 States and Canadian provinces. Last year, the company brought the energy marketing unit of US oil giant Hess, which made Centrica the second largest supplier of energy to businesses within the US. 

Valuation

Still, despite political scrutiny Centrica’s shares continue to trade at a relatively stable valuation. Specifically, the company’s shares currently trade at a forward P/E of 13.2, compared to a five-year historic average of 12.6.

However, according Goldman Sachs, at present levels, Centrica’s share price does not reflect the potential of company’s international operations. As a result, Goldman believes that a break up of Centrica would be good for the company as the newly separated international operations, free of political scrutiny would attract a higher valuation.

This implies that whether or not a break up goes ahead, it is likely that Centrica’s shares can move higher.

Foolish summary

So overall, I feel that there is still time to buy Centrica

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.

Rupert does not own any share mentioned within this article. 

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