The Motley Fool

Tempted by the Centrica share price? Read this first

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.

Serious puzzled businessman looking at laptop
Image source: Getty Images

The Scottish author Samuel Smiles wrote “we learn wisdom from failure much more than from success”. For me, this neatly sums up my investment in Centrica (LSE: CNA). Purchased as a defensive utility stock in 2010 at 326p, I briefly watched in satisfaction as my holding ticked up in value. I supported the share price growth with dividend reinvestment. In 2013, the Centrica share price touched an all-time high of over 400p.

Centrica share price – the downturnNew British One Pound Sterling Coin Chart Rate.

Since that fateful day, Centrica has unleashed wave after wave of bad news onto shareholders. Numerous complaints about customer service and high prices forewarned an exodus of subscribers, at one point over 100k per month. Weak oil and gas prices accounted for more revenue falls. A struggle to dispose of unwanted assets led to another investor sell-off, and the Centrica share price continued to fall.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

For a short while I consoled myself with a generous dividend payment. This was cut in 2015, then suspended entirely amid the Covid-19 pandemic. Centrica was then demoted from the FTSE 100. All said and done, I sit on an 81% loss on Centrica share price capital as I write. This is before considering the opportunity cost of the investment. Had I put my money into Scottish Mortgage Investment Trust in 2010, I would now be rewarded with a staggering 771% growth.

Foolish advice

I write this short confessional to Foolish readers to try and prevent you making the same mistakes as I did. Harvey Jones has told the story of the Centrica share price over the last decade. There were numerous opportuinities to sell my holding each time the bad news arrived, but I was reluctant to crystalise a loss. “Maybe they’ll recover”, I kept telling myself. The harsh lesson I learnt is that there can sometimes be no end to bad news. It is better to cut and run as early as possible.

Centrica share price – the current picture

Lower energy demand from businesses during the first half of 2020 saw revenues falling 14% and operating profits down 9%. An increase in residential demand has partially offset this. However, with homes and businesses suffering from Covid-19-related financial hardship, the group will have to increase provision for deferred payments and bad debts. Encouragingly, cash flow and liquidity remain strong. This puts the group in a good position to navigate the ongoing pandemic.

There are signs that the group is entering a turnaround phase. It is easy to forget that Centrica is still the UK’s biggest household energy supplier, but hasn’t yet fully exploited this position. The simplification of the business coming from offloading exploration and nuclear divisions should bring stability. Restructuring should help increase profit margins over the next two years.

Foolish summary

As new chief executive, Chris O’Shea, gets to grips with a turnaround strategy there could be a case for a value investment. The Centrica share price may see significant upside potential. In my opinion, however, there are better candidates within the FTSE for this kind of investment strategy. As such, I will retain my current holding in the hope of growth and dividend reinstatement, but I certainly will not be adding to it.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

bwatson1 owns shares of Centrica. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.