Centrica (LSE:CNA) shares have pushed upwards this year. In fact, the stock is up 25% over the past 12 months. And this jump is largely due to the rise in energy prices that has positively impacted the businesses performance.
So let’s take a closer look at this electric services company and see whether now is a good time to add this stock to my portfolio.
Three-year trend
If I had added Centrica stock to my portfolio three years ago, I’d only be up 3.7%. So my £300 would now be worth around £311. That’s clearly not a good return for a three-year investment. In fact, it wouldn’t even pay for two drinks at my local.
However, the share price has been anything but flat over the past three years. When the pandemic hit, the share price collapsed from around 90p to as low as 35p. Today, the share price is hovering around 70p after a stellar year, driven by rising energy prices.
Improving fortunes
In July, Centrica said it had delivered a “strong” operational performance in the six months ended 30 June. Adjusted underlying earnings skyrocketed 143% to £1.66bn and adjusted operating profits surged 412% to £1.34bn.
Meanwhile, adjusted earnings per share shot up to 11p from 1.7p at the same time a year earlier. But on a statutory basis, Centrica swung from an operating profit of £1.0bn in 2021 to a loss of £1.09bn a year later. this was due to a £1.9bn loss on net re-measurements after taxation.
Centrica said its stellar performance reflected improved trading environments across much of the group’s segments. The company’s operations in the nuclear and oil & gas businesses were highlighted as a particular area of strength.
Chief executive Chris O’Shea added that the group had made “significant progress” in de-risking the business amid a challenging environment for customers and other energy companies — many of which went out of business.
Better investment opportunities available
Shares in Centrica fell in early September on reports the UK’s largest energy supplier was seeking additional credit to meet rising collateral demands. European electricity providers are required to post collateral with trading exchanges, but volatile energy markets have seen the amounts they are required to post soar as wholesale prices surge.
Moreover, I think there are better places to put my money right now, primarily because of the risks and challenges of the energy market. Amid shortages and rising gas prices, there are reports that we may even experience power outages this winter — although I think the term “load sharing“, as its called in South Africa, might be better for the government’s optics.
The windfall taxes might have been taken off the table, but this government has U-turned before. While Centrica was recently found to be the only UK energy provider without “significant issues”, Ofgem have warned that customers may struggle to pay rising bills this winter.
Because of these challenges and uncertainties, I’m not investing in Centrica right now.
