Buying a slice of Centrica (LSE: CNA) may not appear to be the most exciting move at the moment. The company has been a disappointing investment in recent years, with its share price falling almost 50% since its most recent high in September 2013.
However, buying Centrica now could be a wise move and has the potential to stimulate the performance of a wider portfolio. Why? The company is at the start of a major transformation that will see a number of oil and gas assets sold off as it seeks to reposition itself as a pureplay domestic energy supplier.
This will reduce the volatility of Centrica’s future revenue and profitability as a result of not being so reliant on the price of oil and gas, and will also deliver considerable cost savings. In fact, Centrica is aiming to achieve annual cost savings of £750m by 2020 and with its current dividend yield of 5.6% being covered 1.5 times by profit, this indicates that future dividend rises could be brisk. With Centrica currently trading on a price-to-earnings (P/E) ratio of 12, there’s considerable upward rerating potential on offer over the medium term too.
Meanwhile, coal miner and logistics company Hargreaves Services (LSE: HSP) has released a disappointing trading update today, sending its shares down 5%. Due to the reduced price of coal, the company will restructure its mining plans to reduce Scottish coal production to around 500,000 tonnes per annum while remaining committed to completing all current restoration schemes.
It will also invest in new and enhanced coal processing facilities so as to reduce to a minimum production exposure to lossmaking thermal coal. The cost of this will be around £1m, with additional charges of £1.1m to be incurred in the current year to deliver the revised plan.
Clearly, the outlook for the coal and steel markets is downbeat and with unseasonably mild weather, Hargreaves Services expects the challenging trading conditions that have sent its shares lower by 58% this year to continue. So while they trade on a P/E ratio of just 9.1, shares in Hargreaves Services may be worth watching rather than buying at the present time.
Meanwhile, shares in Amur Minerals (LSE: AMC) have fallen 19% today after the nickel-copper sulphide mineral exploration company released details of a £12.5m rights issue. The deal will see US-based Crede Capital take part in five subscription events of up to £2.5m each at 90-day intervals. The first of these took place today, with each issue of subscription shares to be priced at the closing bid price of ordinary shares on the trading day prior to the date of issue of subscription shares.
The rights issue will provide funding certainty for a substantial portion of the definitive feasibility study, as well as related engineering and design work for the Kun-Manie nickel-copper sulphide project. As such, it could be viewed as a positive step. And in conjunction with the anticipated support of the Far East and Baikal Region Development Fund, it appears to put the company on a path to a production design selection.
With it being a challenging time for the commodities market, the strengthening of Amur Minerals’ financial outlook is likely to prove to be a positive move.The company remains relatively high risk mainly due to its size, but for less risk-averse investors it offers long term growth potential. Today’s news indicated a further step in the right direction.
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Peter Stephens owns shares of Centrica. 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.