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Is the Centrica share price now the FTSE 100 buy of the century?

There aren’t too many FTSE 100 companies whose shares are so unloved they’re at a level not seen since the 1990s. Centrica (LSE: CNA), the owner of British Gas, is one.

Here, I’ll look at whether it could now be the buy of the century. And whether ambitious energy consultancy Inspired Energy (LSE: INSE), which released its annual results today, could also offer rich pickings for investors.

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Growth at an attractive price

Inspired supports its clients with their energy needs, including selecting the best supply contracts, validating energy invoices, meeting compliance obligations on energy and environmental reporting, and increasing effectiveness of energy consumption. In short, “optimising the value of every pound our clients spend on utilities, so that they can focus on running their businesses.”

The company today reported record revenue, with its large corporate division contributing 84% and its SME division 16%. Total revenue of £32.7m was up 24% on the prior year, helped by five strategic acquisitions. Meanwhile, pre-tax profit increased 35% and earnings per share (EPS) by 26%.

Inspired has become a leading procurement consultant to UK and Irish corporates. And in a highly fragmented market, it has considerable scope for further strong acquisitive and organic growth. I see good potential for it to become a significantly more valuable company than its current market value of £131m.

The shares opened 6% higher at 18.38p this morning, and with EPS of 1.68p, the price-to-earnings (P/E) ratio is 10.9. I reckon this is an attractive valuation, and that a 0.65p dividend (up 18%), giving a yield of 3.7%, adds to the investment appeal. As such, I rate the stock a ‘buy’.

Negative view

Centrica is a stock I’ve been bearish on for a long time. However, it’s nine months since I last wrote about it. The share price was a bit above 150p at the time, but has since sunk to a 20-year low — 116p, as I’m writing.

Nearly every stock has a price at which it offers investors good value. Could this now be the case with Centrica? Indeed, could it perhaps have become the biggest blue-chip bargain in the market?

There were a number of reasons for my previous negative view on the company. Regulator Ofgem was flexing its potentially-profit-sapping muscles, competition in the industry was intense, and Centrica’s British Gas business was haemorrhaging customers. Has anything changed since?

Improving outlook

There have been some positive developments. Customer departures slowed dramatically in the second half of 2018. This came as numerous smaller energy suppliers went bust, the cheap deals they were offering proving unsustainable. And while the regulator’s default tariff price cap, which came in at the start of this year, isn’t the best news for Centrica, I think it’s likely to be a lot worse for the smaller players.

City analysts have EPS bottoming out at 9.8p this year, followed by 20% growth to 11.8p in 2020. This gives a current-year P/E of 11.8, falling to a bargain-basement sub-10 next year. The company’s running 12p dividend (10.3% yield) may have to be rebased, as cash flow this year looks likely to be tight, but a cut appears to be already priced in.

On balance, while I don’t think Centrica is the FTSE 100 bargain of the century, I reckon the share price is sufficiently low, and the outlook sufficiently improved, to move to rating the stock a ‘buy’.

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G A Chester has no position in any of the shares mentioned. 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.