Over the past five years, the value of Centrica‘s (LSE: CNA) share price has collapsed. The stock’s fallen a staggering 76%, excluding dividends, during this period.
However, over the past 12 months, shares in the owner of British Gas have started to recover. The stock’s increased in value by 35% since the end of September last year. The FTSE All-Share has returned just 23%, excluding dividends, during the same period.
And the market’s really started to take an interest in the company as the UK economy’s become gripped by an energy crisis. Over the past month, the stock’s returned 7.5% compared to a loss of around 1% for the FTSE All-Share.
Following this performance, I’m starting to wonder if the energy crisis has helped the Centrica share price finally emerge from its multi-year slump and if this could be an opportunity to buy.
Bigger is better
Over the past few years, Centrica has struggled to attract consumers in the incredibly competitive UK energy market. New upstarts have been willing to lose money on their contracts to win over customers. As a result, a steady trickle of consumers have been leaving British Gas.
Many of these competitors have been chasing growth at all costs, a strategy that’s now coming back to haunt them.
After the recent spike in wholesale energy prices, the current cost of supplying each consumer has jumped to around £1,900. That’s significantly above regulator Ofgem’s energy price cap, which is expected to rise to £1,277 for customers on default tariffs paying by direct debit from the beginning of October.
The gap between supply prices and the price cap is causing significant losses, pushing challenger brands to the wall. However, this could be good news for Centrica.
Not only will the Centrica share price benefit from having lower levels of competition in the market, but it’s also picking up consumers from failed energy providers. It’s already scooped up 350,000 domestic customers after the failure of People’s Energy.
Of course, British Gas and Centrica aren’t immune to the pressures facing the energy industry as a whole. The group still has to pay the higher energy costs the rest of the industry’s struggling with. It’s also limited in how much it can charge consumers with the energy price cap.
These factors have weighed on group growth over the past five years. I think they’ll continue to be a thorn in the company’s side.
Centrica share price outlook
Nevertheless, the group’s far more diversified and experienced than many of its younger, smaller competitors. Further, in recent years, it’s undergone a dramatic restructuring. Management’s slashed costs and reduced debt, which means the organisation is now in a stronger position than it has been for some time.
Following these changes and the group’s diverse product range, which includes services such as boiler cover and smart energy devices, I think Centrica is well-placed to navigate to the current crisis. As it picks up customers from failed suppliers, I believe the organisation even stands a chance of emerging stronger on the other side.
With this being the case, I think the Centrica share price will continue to benefit from the UK energy crisis. That’s why I’d buy the stock for my portfolio today.
