The Motley Fool

The Centrica share price dips, despite a return to profit. Time to buy?

Image source: Getty Images.

I expected a return to profit might herald an upswing for Centrica (LSE: CNA). But that’s exactly what didn’t happen Thursday, as the energy supplier reported a first-half operating profit of £1bn. No, despite the big reversal from a £338m operating loss in 2020, the Centrica share price opened weakly.

The drop is only small, at around 1.5% at the time of writing. And a deeper look makes this latest update a little less exciting. The thing is, the big headline profit is a statutory figure, as is last year’s loss. And on an underlying basis, things are nowhere near as dramatic.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Adjusted operating profit in the half (excluding the now-sold Direct Energy) stayed pretty much flat, at £262m. Adjusted EPS gained 6% to 1.7p. And free cash flow improved by 4% to £524m. That’s good, if modest, progress. But it’s not what’s making me wonder if it’s time to buy Centrica shares now.

No, what I’m looking at is Centrica’s net debt. At just £93m, it’s fallen 97% from the £2.998bn recorded at 31 December 2020. The sale of Direct Energy in January, for $3.6bn, is what did it. It also raised a £608m exceptional profit, which boosted the headline statutory figures.

Centrica share price attractive?

But it does represent what I think it the right way to go, as Centrica has moved to focus on its UK and Ireland business. Yet if Centrica is doing the right things, why am I hesitant and not rushing to buy? Some of it is highlighted in the words of chief executive Chris O’Shea, who said that “we continue to make good progress towards the simplification of our company. Although there is still a lot to achieve, our turnaround remains on track, our balance sheet has been significantly strengthened“.

Although I like the progress I see so far, we are still very much looking at a work in progress. On that basis, it’s still hard to build a picture of the eventual shape of the company that will emerge from this metamorphosis. And that makes it tricky to put a fair valuation on the Centrica share price.

That zero business

There’s something else in Mr O’Shea’s words that gives me pause. He spoke of “the path to net zero“. That is something hanging over the whole of the industry. And I find it hard to even guess at what the energy landscape is going to look like in the next five years, never mind a couple of decades from now.

Oh, and these results come from a period of rising fuel prices, which gave upstream operations a boost. Oil is around $70 per barrel now. And while a few years ago I’d have considered that to be a sustainable level, today I’m less confident. I can’t help thinking prices could continue to be volatile over the coming years.

So, on the one hand, I think I’m seeing a well managed recovery and I’m tempted by today’s Centrica share price. But against that, there’s too much industry uncertainty for me at the moment. For now, Centrica can stay on my watchlist.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.