It’s a sad fact of investing that even solid blue-chip stocks can come unstuck, even those involved in ‘defensive’ sectors like utilities.
Life’s not a gas
Just look at British Gas owner Centrica (LSE: CNA). Of all the stocks listed on the FTSE 100, it is one of the worst performers over the last 10 years. My figures show the Centrica share price traded at 280p on 27 December 2009, but just 90p today. That’s a drop of more than two-thirds, so if you had invested £1,000 a decade ago, you would have just £322 now.
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Actually, you should have a bit more as Centrica has paid dividends throughout its slump, but you would still be sitting on a heavy loss (unless you sold, of course).
On the other hand, if you had put your £1,000 into the best performing stock now listed on the index, JD Sports Fashion, you would have £32,000, with dividends reinvested, AJ Bell figures show.
Spread the love around
You can make a huge amount of money on the stock market, but as Centrica investors have learned, you can lose it too.
That is why we urge people to build a diversified portfolio of stocks, so that if some underperform, others should compensate. Alternatively, put your money into a FTSE 100 tracker, such as the iShares Core FTSE 100 UCITS ETF, or other indices such as the FTSE 250 or US S&P 500, to spread your risk across a wide range of stocks.
So what went wrong at Centrica? Pretty much everything, actually.
Customers have been leaving in droves, around 100,000 a month at its peak, complaining about high prices and poor service. That works out as more than a million a year, and although Centrica still has nearly 12 million accounts, no business can take that kind of loss (although the outflow has slowed lately).
Last year, its shares hit a 15-year low. This year, a 22-year low, as they took a £70m hit from the new energy price cap, more than any rival.
Its oil and gas exploration and production business was punished by falling energy prices, and the company is now is looking to exit that market in 2020. It will also sell its 20% stake in EDF Energy’s nuclear reactors.
Centrica is shrinking.
Outgoing chief executive Ian Conn is rightly taking most of the blame, with the share price down three-quarters on his watch, and dividends slashed. New ventures such as the smart home business, which includes its Hive smart thermostats, were supposed to generate £1bn of revenue by 2022, but will be lucky to produce a fifth of that.
Others blame predecessor Sam Laidlaw, who bought up oil and gas deposits when his time may have been better spent investing in the increasingly rewarding wind power market.
Things can only get better, can’t they?
There are signs of share price recovery, with the stock up 22% in the last month, boosted by Boris Johnson’s victory, which halted British Gas nationalisation fears. Earnings are forecast to drop 38% in 2019, but jump 36% next year. So that’s something.
The forecast yield is 5.6%, with cover of 1.4. Maybe this time it won’t be cut. Centrica trades at 12.4 times forward earnings. The big question is where will growth come from? If this beaten-up stock manages to recover, it would be the turnaround of the next decade.
I’m not holding my breath, though.