Is the Centrica share price too cheap to ignore?

The Centrica share price is down more than 80% over five years. Here’s why I think it’s turning into a tempting long-term buy.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

Job losses

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.

Should you invest £1,000 in Centrica right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Centrica made the list?

See the 6 stocks

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.

Restructuring

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.

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Investing Articles

Can this FTSE 250 underperformer turn things around in 2025?

After underperforming since its IPO, shares in Dr Martens have finally started to show some life. Is 2025 the year…

Read more »

Investing Articles

Here’s what £20,000 invested in Rolls-Royce shares at the start of 2024 is worth today

2024 was another brilliant year for Rolls-Royce shares, which almost doubled investors' money. Harvey Jones now wonders if the excitement…

Read more »

Investing Articles

Ahead of its merger with Three, is Vodafone’s share price worth a punt?

The Vodafone share price continues to fall despite the firm’s deal to merge with Three being approved. Could this be…

Read more »

Dividend Shares

3 simple passive income investment ideas to consider for 2025

It’s never been easier to generate passive income from the stock market. Here are three straightforward investment strategies to consider…

Read more »

Investing Articles

I was wrong about the IAG share price last year. Should I buy it in 2025?

The IAG share price soared in 2024 and analysts are expecting more of the same in 2025. So should Stephen…

Read more »

Investing Articles

Here’s the dividend forecast for National Grid shares through to 2027

After a volatile 12 months, National Grid shares are expected to provide a dividend yield of 4.8% for the company’s…

Read more »

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Growth Shares

2 exceptional growth funds that beat Scottish Mortgage shares in 2024

Scottish Mortgage shares generated double-digit returns for investors in 2024. But these two growth-focused investment funds did much better.

Read more »

Investing Articles

If a 40-year-old put £500 a month in S&P 500 shares, here’s what they could have by retirement

A regular investment in S&P 500 shares could help a middle-aged person build a million-pound portfolio. Royston Wild explains.

Read more »