Shares in British Gas owner Centrica (LSE:CNA) have fallen sharply in recent times, and on the face of it there appears to be little to suggest that it can make a comeback any time soon.
The utilities firm has suffered from sharp decreases in customer numbers over the last few years, sending the share price tumbling around 45% in the last 12 months, despite Centrica attempting to offset this with dividends.
Earlier this month, it announced it was to cut 700 jobs in response to what it referred to as ‘growing challenges’, the latest slap in the face for investors hoping for an unlikely recovery.
Is there any way the share price can recover from recent woes? While the general consensus seems to be that its shares should be avoided at all costs, every stock has its price and this one might appeal to those who are not too risk-averse.
Headwinds
At first glance, the outlook for Centrica appears very grim. Increased competition within the utilities sector is set to continue as more options for consumers become available. In February, the company reported that it had lost 742,000 customers in the UK alone in the previous 12 months.
The introduction of a government-backed pricing cap has significantly dented its profits and investors appear to be unconvinced that it can make up the shortfall.
Energy regulator Ofgem announced new price controls in May which could see consumers saving up to £6bn nationally, but Centrica could see as much as a £300m loss of profits in 2019 as a result.
Analysts believe that the firm’s full-year dividend could be cut to 8.3p from 12p last year in response to profits falling further. At the very least it will need to be cut to some extent as the current dividend is simply unsustainable.
Silver lining
So is there anything good to look forward to? Maybe. Some commentators have suggested that due to the share price falling as low as it has (90p at the time of writing), there could be an opportunity for a value buy.
My Foolish colleague G A chester has remarked that its value could make it the subject of a potential acquisition, which could lead to greater potential growth as part of a larger entity.
And while Centrica’s earnings per share is forecast to fall further in 2019, City analysts have predicted that EPS will rise again in 2020, signifying that they believe earnings will bottom out this year.
At this stage, my estimation would be that most of the negative news surrounding Centrica has already been priced into its current valuation, including the likely announcement of a dividend cut.
That said, I tend to err on the side of caution when it comes to riskier investments such as this, and I wouldn’t buy at its current price. I do believe, however, that it is worth monitoring its progress closely in the next few months, particularly as its half-year earnings report at the end of July.
