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This dirt-cheap FTSE 100 share has crashed 65% in 2020. Here’s what I’m doing now

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The FTSE 100 index crash resulted in share prices of constituent companies’ stocks becoming available at huge discounts. While many of them have started recovering, there’s still some way to go before their share prices get back to pre-crash levels. But there are some FTSE 100 stocks that are yet to start the process of share price recovery. These include some of the cheapest ones available.

Centrica’s share price continues to fall

Consider the example of energy company Centrica (LSE: CNA). The FTSE 100 index rose by 16% at the last close from the lowest level of 4,994 it has seen in this stock market crash. On the other hand, CNA’s share price has actually fallen by 19% since, to 31.8p at the last close. Further, from the start of 2020, its share price is down by 65%. Clearly, it’s out of favour, despite some semblance of health having returned to the stock market.

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The reason for this isn’t hard to find. CNA released its trading update in early April, in which it said that the Covid-19 crisis is expected to impact its revenues. For that reason, it has withdrawn its earlier 2020 guidance. Further, it cancelled its final dividend. As a stock with a double-digit dividend yield until then, the cancellation is bound to have disappointed investors. 

Dividend yield less than FTSE 100 average

At its share price before the update release, its dividend yield would have been 13.5%. This estimate accounts for both interim and final dividends. After the update (even at the latest price), its yield that now only constitutes the interim dividend is a low 4.7%. I always like to compare companies’ yields with that of the FTSE 100 average to get a sense of where they stand. The average FTSE 100 yield is at 5%. CNA’s yield is below this.

As a share that has seen a broadly falling price trend since 2013, a high passive income was the likely allure for a lot of investors. With a falling share price and no dividend income, it’s little surprise that CNA’s share price continues to be in freefall, despite the pick-up in the FTSE 100 index.

Past challenges, questions about the future

I’m also uncomfortable about the fact that it was loss-making in 2019 and that its revenues have been declining for the last two years. With its 2020 guidance now withdrawn as demand for its services slows down and the dividend cancellation, I’m not sure what to look forward to in this stock as an investor.

It has found a new CEO in Chris O’Shea this week, a while after the former CEO, Iain Conn stepped down in July last year. His first challenge is already laid out. It’s a time of crisis for almost all companies and how CNA comes through it, could impact its future even post-crisis. I’m waiting to see what’s next for CNA. But for now, I’d invest in less risky stocks.

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Manika Premsingh 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.

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