Centrica (LSE:CNA) shares are ranked amongst the top three FTSE 100 performers over the last year. Being a seasoned UK energy giant, its shares have jumped 48% in the last 12 months of trading. And I think this could be the start of a big bull run in 2023.
The surge in its share price is primarily because of the energy crisis in the UK and Europe. Rising fuel costs are causing strong inflation in the region. Germany was in the news earlier this week when inflation hit its highest level in almost 50 years. Nine other countries in the region have registered double-digit annual inflation, thanks to a big spike in August.
A recent report from the International Energy Agency showed that coal prices will remain close to all-time highs for at least the next six months. As a result, energy companies could see a further surge in earnings in 2023. And I think investors have rightly been clamouring to buy renewable energy shares in the UK while they are still cheap.
Centrica share price has strong momentum
Centrica is one of the largest suppliers of electricity and natural gas to consumers in the UK and Ireland. The company operates British Gas, which provides gas to over 9m homes across the country.
Just this week, UK wholesale gas price tumbled by more than 20% thanks to Centrica’s efforts to reopen UK’s biggest gas storage facility located under the North Sea. However, despite this drop, prices still remain 12 times higher than 2021 levels.
While many investors will look at this as a step to reduce gas prices, I think this still benefits the firm. Gas storage facilities will now maintain reserves at 80% capacity. This is to avoid any abrupt supply disruptions when Russia further reduces gas exports before the winter. This means that British Gas‘ reserves could quickly jump in value again if reserves drop in early 2023.
This is the main reason why I think Centrica shares look cheap right now despite the 143% rise since 2020’s crash. At 77.8p, its share price is currently 20% lower than 2022’s highs of 93p. And I think the company can post new post-pandemic highs if current demand continues in 2023.
Concerns and verdict
However, this is firmly dependent on how the UK government handles the current energy crisis. Relief measures, including cash payments to households, have been deployed to reduce the impact on the public. European leaders are turning to other major exporters like the Middle East and the US. However, given the demand, this could become expensive.
The price of crude oil is a big factor that Europe and UK will have to address. Companies, including Centrica, have an established renewable energy network. But if they are forced to increase green energy capacity, it could put pressure on operations and cash reserves. This could put off investors as profit margins and revenue will be affected.
While this energy crisis is concerning, it also presents an opportunity. Centrica holds prominent green energy assets and is a market leader in the UK. The gas giant could play a substantial role in providing the infrastructure to help the UK transition.
I am bullish on the company and could be tempted to invest in Centrica shares if there is a significant correction in the coming months.