The Centrica (LSE:CNA) share price went into reverse on Thursday (25 July) after the energy giant released its results for the first half of the year.
The company’s results showed that the period of bumper earnings had come to an end, with a substantial drop in profit in its retail division.
Let’s take a closer look at the earnings and what this means for investors.
Should you invest £1,000 in BHP right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BHP made the list?
Things are back to normal
Centrica reported a significant drop in profits for the first half of 2024, with adjusted operating profit falling to £1.035bn from £2.083bn in the same period last year.
This decline is largely attributed to a return to “more normalised market conditions“, after Russia’s war in Ukraine contributed to surging energy prices.
This was evidenced by the British Gas results — Centrica’s retail division. The business unit saw its profits plummet from £969m to £159m.
Centrica also highlighted that earnings would be heavily weighted towards the first half of the year.
However, there were some positives. The company’s North Sea producer, Spirit Energy, performed well, more than doubling its profits to £245m.
And the company said it’s continuing to pursue carbon storage opportunities in Morecambe Bay and remains ready to transform its Rough field for potential hydrogen storage — although there was some concern here due to low seasonal spreads.
CEO Chris O’Shea said that core businesses are meeting expectations and the company’s on track to deliver on medium-term profit objectives two years ahead of schedule.
What does this mean for investors?
Centrica pointed to a marked improvement in customer satisfaction as client-facing investments began to pay off. However, this clearly wasn’t enough to keep investors happy.
The stock’s now trading at 7.5 times forward earnings, and that figure rises to 10 times for 2025 and 11.2 times for 2026.
This unfortunately is the nature of cyclical industries like energy, with profits and share prices often fluctuating based on market conditions.
While Centrica’s a diversified energy company, with operations all across the energy value chain, the energy sector tends to move as one, with commodity prices rising and falling in tandem.
Thankfully, the company’s in a relatively strong financial position. Centrica now boasts a net cash position of £3.2bn, an improvement from £2.7bn last year.
It’s also seen a huge turnaround from 2020 when the company was sitting on a net debt position of £3bn.
So with around 40% of its market value now in cash — as JP Morgan rightly forecasted last year — Centrica’s in a strong position to weather any storms and invest for the future.
The bottom line
I’ve struggled to find an entry point for any stocks in the energy segment in recent years. As such, there’s something of a hole in my portfolio.
One issue I have is that these stocks tend to be both mature and volatile. I accept young and volatile, and I like mature and stable.
Personally, I don’t see the current dip as an a great time to consider Centrica stock. It had been one of the FTSE 100‘s performing stocks in recent years, but we appear to be entering a down cycle.
