Centrica PLC (LON:CNA) (CNA.L) has experienced a number of challenges in recent years which have caused its shares to decline in value. In fact, they were trading as high as 402p five years ago, but are now at 142p.
Investors seem to have become increasingly concerned with the performance of the company, as well as the industry outlook at a time when cyclical shares have been more popular than defensives.
The company has sought to change its strategy in response to a weak oil price. It is now focused on the energy supply and management sectors, and may therefore miss out to at least some degree from the resurgence in the oil and gas sector.
Its transition has not been particularly smooth in my view. Parts of the company have performed less well than I expected, and the process is taking time to have the desired impact on the stock’s financial performance.
Further, Centrica has also been hurt by the regulatory and political risks surrounding the utility sector in my view. Potential price caps have loomed over the industry in recent years, while the threat of nationalisation may have kept some investors downbeat about the company’s long-term outlook.
Now, though, the stock has a dividend yield of over 8%, and I feel it could offer a margin of safety. This could lead to improved share price performance – particularly if the stock market bull run of the last decade comes to an end in the next few years.
With Centrica seeming to have a sound strategy which focuses on efficiency and cost reduction, I believe that it can offer improving financial prospects over the long run. While its stock price could be volatile in the near term, in the coming years it may be able to offer performance that beats the FTSE 100. As a result, I’m cautiously optimistic about its investment potential.