The Centrica share price is up 20% this year. Should I buy more?

Up 20% since January, the Centrica share price is attracting attention. Christopher Ruane considers whether now is a good moment to increase his holding.

| More on:

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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

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.

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.

christopherruane 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.

More on Investing Articles

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

A profitable penny stock with a well-covered 8% dividend yield! What’s the catch?

Mark Hartley dives into a rare penny stock that offers an 8% dividend yield, investigating whether it deserves a place…

Read more »

Close-up as a woman counts out modern British banknotes.
Investing Articles

I slashed my monthly expenses by £300 to help me aim for a steady second income stream of £20k

This Fool's saving an extra £300 a month and investing it in a portfolio of dividends stocks to power his…

Read more »

Workers at Whiting refinery, US
Investing Articles

Come on Shell! Here’s why you could consider buying BP shares…

Following takeover speculation, James Beard’s put together a letter to Shell’s boss explaining why the energy giant could consider buying…

Read more »

National Grid engineers at a substation
Investing Articles

National Grid shares: a £1,000 investment 5 years ago is now worth…

National Grid shares are on the rise! Here’s how much money investors have made so far… and how much they…

Read more »

Close-up of children holding a planet at the beach
Investing Articles

Vodafone shares: a £1,000 investment 5 years ago is now worth…

Vodafone shares have underwhelmed since 2020, but could the stock be on the verge of an explosive comeback? Here's what…

Read more »

Businessman using pen drawing line for increasing arrow from 2024 to 2025
Investing Articles

Investing £1,000 in BT shares 5 years ago: here’s how much could have been made…

BT shares are on the rise as the company steers itself towards £2bn of free cash flow generation by March…

Read more »

Woman riding her old fashioned bicycle along the Beach Esplanade at Aberdeen, Scotland.
Investing Articles

£100,000 invested in Tesco shares at the start of 2025 is now worth…

Tesco shares are on the rise as the UK's leading supermarket continues to dominate, but how much money have investors…

Read more »

Abstract 3d arrows with rocket
Investing Articles

This UK growth share turned £1,000 into £5,000!

Contrary to popular belief, there are some phenomenal UK growth shares capable of delivering game-changing returns just waiting to be…

Read more »