Centrica (LSE: CNA) has been in trouble with shareholders for some time, with its shares falling 84% over the past five years. The Covid-19 crash has piled on the problems too, and the Centrica share price has lost 52% so far in 2020 alone. Things could have been worse though, and the price is actually up around 45% since the year’s low in April.
Last week, the British Gas owner announced plans to shed 5,000 jobs from its global workforce of 27,000. That includes cutting Centrica’s senior leadership team of 40 by half, as part of new boss Chris O’Shea’s restructuring plans. It seems like an unfortunate but necessary step on the path to long-term recovery to me. The City seems to have seen it that way too, as the Centrica share price has put on 8% since that news.
Centrica has seen its earnings declining over the past few years, in part due to competition and the loss of British Gas customers. The energy price cap and falling gas prices made things even worse, leading to a hefty loss in 2019. The firm slashed its dividend too, from 12p per share in 2018, to just 1.5p.
Centrica share price
To me, preserving the dividend at 12p throughout the earnings slump was a sign of poor management. It’s something that might keep shareholders happy in the short term, but sadly the short term often seems to be the only thing some company managers are interested in.
If it was a “keep paying and hope things get better” strategy, then it was doomed to failure. Shareholders might have kept on pocketing their annual income for a while, but they suffered a catastrophic fall in the Centrica share price at the same time.
The arrival of a new boss can be a good time for renewal at a company. There can be less reluctance to face up to its previous failures (because they were the old management’s fault, right?) O’Shea took over the top job only in April, having previously been Centrica’s finance director. That gives me hope, as he’s been very much at the sharp end of Centrica’s profit and balance sheet catastrophe. Focusing on the firm’s liquidity is, for me, the best thing he can do for the long-term future of the Centrica share price.
The job losses are being combined with a simplification of a number of the firm’s practices. I see it as a clearly-needed restructuring. But there’s one other thing Centrica needs to fix — customer service. If the new boss can improve that, I think we really could be at the beginning of a steady Centrica share price recovery.
My overall feeling is that Centrica has been at rock bottom this year. And I’m hoping the pummelling the market has suffered from the Covid-19 downturn will provide a wake-up call across the economy.
The lesson is that long-term attention to the balance sheet should be at the core of any business. I think that lesson has been learned here. And, to me, the low Centrica share price indicates a long-term buy.
Alan Oscroft 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.