While Centrica (LSE: CNA) might not be a household name, its brands such as British Gas are. The energy company sells gas and services in the UK and overseas. That might sound like an attractive business, but the Centrica share price has been on a rough ride for years.
This year, the shares have moved up 20%. Over the past year, Centrica shares are up more than 60%.
They are still three-quarters down on where they sat five years ago, though. Here I consider whether, as a shareholder, now is a good time for me to buy more Centrica shares.
Attractive business assets
One of the things that attracted me to Centrica in the beginning was its strong set of business assets.
For example, British Gas is still the default gas brand for many British customers. Even though British Gas has lost energy customers every year over the past decade, it still has 6.9m of them. It sells services to 3.6m customers too. I have long been concerned about the decline of this business, which I see as linked to pricing and service levels in many cases. Nonetheless, such a powerful brand clearly gives the company pricing power, which makes the shares more attractive to me.
The company has other assets too, including in oil and gas as well as nuclear power. However, it has increasingly been moving out of these businesses in the past several years. I see this as positive for the Centrica share price if it enables the company to strengthen its balance sheet and focus on fixing its core UK business.
Future focus
The company’s long share price decline tells its own sad story.
New management has grasped the nettle and is planning to focus on restoring the health of the core UK business. As the chief executive said in the annual report released this week, “We took on too much. . . We cannot run Centrica in the same way if we want to reverse our decline and restore shareholder value.”
That sounds to me like a strong statement of intent. It candidly recognizes that there is a job of work to be done.
Against that, however, some British Gas engineers have been striking over contentious labour negotiations. The whole story is yet more bad press for Centrica. It somewhat undermines the impression that the company is on the road to recovery.
Assessing the Centrica share price
Even with good assets and a recognition of what needs to change, a business can still struggle if the changes don’t materialize.
Centrica’s long history of value destruction has burnt many shareholders’ confidence, including my own. While the dividend was attractive, the last dividend rise was in 2013. The dividend was cut in 2019, and then suspended. For now there is no sign of when it will return. Restoring the dividend could boost the Centrica share price.
While the shares may look cheap using historical dividend data, they could also be a value trap in my opinion. The long-term decline of the core British Gas business could be hard to reverse. The industrial dispute is not an encouraging sign on that front, either. I’d rather choose a company with the wind in its sails where less things need to be fixed. So I won’t be buying any more Centrica shares.
