British Gas owner Centrica (LSE:CNA) is one of the largest energy firms in the UK. Many smaller players in the market have gone bust due to the soaring prices of natural gas recently. How has the Centrica share price reacted to the recent market volatility, and should I add shares to my portfolio?
Centrica share price activity
As I write, Centrica shares are trading for 61p per share. If I added shares to my portfolio a year ago for 40p per share, I would have seen a 52% return.
The recent news of natural gas prices soaring and consumers being forced to pay much more in energy bills has been a bitter pill for the market. In the same time period, the Centrica share price has spiked. Shares are up 15% from the beginning of September when they were trading for 52p per share to current levels.
Centrica shares have been on a downward trajectory for some years, however. Prior to the market crash of 2020, shares were trading for 85p at the beginning of February 2020. This means shares are currently below pre-crash levels. At the beginning of February 2019, shares were trading for over 136p per share. Poor performance, increasing competition, and Covid-19 has affected the Centrica share price and investor sentiment has dampened in recent years too.
For and against
I have compiled a case for and against investing in Centrica shares for my portfolio.
FOR: New customer boost. The untimely demise of many smaller energy firms has left consumers needing new suppliers. For example, last month Centrica received 350,000 customers from recently defunct Peoples Energy. Centrica’s customer numbers have long been in decline but fewer firms out there will mean potentially more customers for it. The costs incurred by adding these costs will be recoverable from regulator Ofgem too.
AGAINST: External factors. Firms at the mercy of external factors it cannot control do not sit well with me. Centrica is firmly in that boat. Regulatory pressures, gas prices it cannot control, and consumers’ frustration at increasing bills could negatively affect the Centrica share price and investor sentiment too.
FOR: Centrica has decided to restructure its operations which can only benefit its performance in my opinion. It recently confirmed the sale of some of its non-core businesses and said it would focus on its core activities. This has resulted in increased guidance for full-year profits for this year and next. Of course, guidance is simply a forecast and not a guarantee. The restructure is promising, however.
AGAINST: Centrica’s biggest threat in my eyes is competition. Despite the fact many smaller firms are struggling and going out of business, other large firms like Centrica are profiting. Centrica has been losing market share for many years and this could affect it once more.
My verdict
I believe the Centrica share price could be boosted by the recent hike in gas prices. Despite that, there are more negatives than positives for me right now. Investing in a stock in a sector that is at the mercy of too many external factors it cannot control puts me off. I will not buy shares for my portfolio right now.
Jabran Khan 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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