Energy firm Centrica (LSE:CNA) has seen its shares climb in recent times due to rising prices. Have I missed the boat here, or could I still buy the shares and benefit?
Centrica share price benefits from rising prices
As a quick reminder, Centrica is best known as the owner of British Gas, which is one of the largest residential suppliers of gas and electricity in the UK.
So what’s happening with Centrica shares currently? Well, as I write, they’re trading for 82p. At this time last year, the stock was trading for 49p, which equates to a 67% return over a 12-month period.
The Centrica share price was unaffected by the stock market dip when macroeconomic headwinds and the tragic events in Ukraine came to a head in early March. At the time many UK shares were affected and some still haven’t recovered.
Risks to note
Despite recent positive performance, I can’t help but wonder if this turnaround could be short-lived. Much has been made of the energy price cap increasing in recently. There has even been talk of the government getting involved to cap the rise in prices. This could definitely see recent positive performance curtailed to a degree. I believe this could impact Centrica shares and investor sentiment. This is a key development I would keep a very close eye on.
Next, Centrica has a chequered performance track record, although I am aware that past performance is not a guarantee of the future. For example, its most recent half-year report made for excellent reading. But just last year, the firm had debt on its books. Furthermore, due to the current cost-of-living crisis, people are looking at cheaper alternatives for utilities, which has impacted cash flow for the business significantly.
The bull case and my verdict
I can understand why the Centrica share price has been climbing, especially based on its most recent results. The half-year report released at the end of July was excellent. Net debt at the same time last year turned into a positive position of over £300m this half year. Next, revenues nearly doubled compared to 2021 too. Finally, the business was able to declare an interim dividend. This dividend amounted to 1p per share. Despite the small amount, this is a positive as it means Centrica’s dividend has returned after a two-year hiatus.
So with Centrica paying a dividend once more, what sort of levels of returns am I looking at? Currently, the dividend yield stands at close to 1.5%. I believe if energy prices continue rising in the same vein, this level of return could increase.
Finally, Centrica has decided to restructure and streamline the business. It has sold foreign assets and is focusing on expansion in more lucrative business units like British Gas as well as green energy alternatives.
Overall I would be willing to buy a small number of Centrica shares for my holdings. With the current state of the market, and the fact Centrica is in a much better position from a balance sheet and market share perspective, I would expect the Centrica share price to continue to rise as well as returns to increase too.
