Having fallen by 28% in the last year, the performance of shares in Centrica (LSE: CNA) has clearly been hugely disappointing. The company has experienced challenges in parts of its business, while regulatory risk has caused investor sentiment to weaken.
However, the company’s recent update suggested that it may be in the process of delivering improved performance. With a turnaround strategy in place, it could offer a better investment opportunity than the perennially volatile virtual currency bitcoin.
Centrica’s recent trading update stated that performance in the year to date has been in line with expectations. Encouragingly, it has seen the rate of net consumer customer account losses fall in recent months. This is despite high levels of competition remaining in its core markets. And with it delivering growth in its Connected Home and Distributed Energy & Power businesses, it remains on track to deliver on its 2018 growth targets.
Furthermore, the company is set to deliver its next phase of cost efficiency. It anticipates that efficiency savings of £200m will be delivered in the current year as part of the company’s increased £1.25bn per annum cost efficiency programme. And with its bottom line forecast to rise by 5% in the current year, it could become a turnaround opportunity over the medium term.
Of course, one of Centrica’s major attractions for investors is its dividend yield. In the current year it is expected to be 8.1%, which is more than three times the current rate of inflation. Although dividends per share are expected to see a modest fall in 2019, the stock is still expected to deliver an income return of 7.7% next year. And with dividends due to be covered 1.2 times by profit this year, the sustainability of its shareholder payouts may be higher than the market currently anticipates.
Since Centrica trades on a price-to-earnings (P/E) ratio of around 12, it seems to offer good value for money. Certainly, the potential for regulatory change and the uncertainty of its updated strategy delivery could mean that it is more volatile than it has been in the past. But its investment outlook still appears to be promising.
In terms of its risk/reward ratio, Centrica appears to offer greater appeal than bitcoin. The virtual currency has experienced a hugely volatile period in recent months which has seen its value more than halve since the latter part of 2017. And while there is the potential for it to make strong gains in a short period of time, there is also an equal chance of further declines over the medium term.
With a lack of income prospects and uncertainty regarding the potential for new regulation, bitcoin appears to be a speculative opportunity, rather than a possible investment for the long term. Due to the upside potential on offer in shares such as Centrica and a number of its FTSE 100 peers, there should be superior risk/reward ratios on offer outside of the cryptocurrency space at the present time.
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Peter Stephens owns shares of Centrica. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.