How Much Lower Can Centrica PLC Go?

Right now I’m looking at some of the most popular companies in the FTSE 100 and wider market to try and establish in which direction their shares are likely to move.

Today I’m looking at Centrica PLC (LSE: CNA) (NYSE: CPYYY.US) to ascertain if its share price will continue to fall.

Market sentiment
centrica / sse

Right now, it would appear that the market is wary about Centrica’s future, as there are a number of uncertainties overhanging the company.

In particular, Centrica is struggling to meet its own self-imposed targets for growth, is looking for a new CEO, facing an investigation by the Competition and Markets Authority and is failing to connect with customers.

And even the weather is turning against Centrica. Milder weather over the winter period hit consumption at the company’s UK downstream business. And over in North America extreme weather conditions damaged some of Centrica’s infrastructure, leaving the company with a large repair bill.

However, the most pressing factor weighing on Centrica is the fact that the company is struggling to retain customers. Centrica lost 180,000 residential supply, and 100,000 service accounts during the first three months of this year alone. 

With the pressure piling up, it’s no surprise that Centrica’s longstanding CEO, Sam Laidlaw, has decided to leave the company before the end of this year.

Laidlaw’s departure follows that of British Gas boss, Phil Bentley, and Centrica’s chairman, Sir Roger Carr, who both left the company last year. These departures have worried investors, who have expressed alarm at the exodus of senior management during a time when Centrica is facing unprecedented pressure from all sides.

City expectations

The City is not excited about the company’s outlook. Current City forecasts expect that Centrica will report earnings per share of 23.6p this year, a fall of 11% from the figure reported last year. These forecasts have already been revised downwards from an initial estimate 26p, forecast at the beginning of the year.

That being said, Centrica’s management has stated within the past few weeks that the company’s earnings for this year will miss expectations and will fall in the 22p-23p range.

Still, management expects Centrica to return to growth during 2015 and the company’s dividend yield is expected to hit 5.5% this year, despite falling earnings.

Possible headwinds

Nevertheless, with so much uncertainty surrounding Centrica, I’m anxious about the group’s ability to meet even its own lowered forecasts.

Indeed, as customers continue to turn their back on the company and political pressure stops Centrica from hiking energy prices, profits are likely to come under pressure.

Foolish summary

So overall, unless Centrica can reassure investors that it has a concrete plan for growth and remove much of the uncertainty surrounding the company, then I feel that the company’s shares will continue to fall. 

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In the meantime, please stay tuned for my next verdict.

Rupert does not own any share mentioned within this article.