Technical Opinion
Centrica plc is a UK based energy company which supplies natural gas to consumers in the UK through its subsidiary company British Gas. Centrica’s stock fell significantly during 2014 due to poor earnings reported and overall bad expectations about future performance. Technical analysts in the UK believe that the stock is set to recover back to its 2013 highs, as the downtrend is seen as corrective, and it has now met its target levels. The stock is expected to set some kind of a bottom, possibly through a volatile bottoming process within the 200p – 300p price zone, and then slowly but steadily ascend to the previous highs, and possibly higher than that. When looking into the next 3 to 5 years, this stock has the capacity to rally steadily, so it is very possible for the stock to end up doubling in price, and end up in the 500p price region. For the next 3 to 5 years, it can be said with a great deal of certainty that the stock will fully recover, back to the 400p price level. Despite possible volatility and confusion during the bottoming process, which all stocks tend to go through, the underlying direction will be up, all the way to 400p, as the first target.
Centrica’s stock is bound to rise again. From a technical perspective the ADX index is showing a concentration of buying pressure, or rather an exhaustion of the stock’s price downtrend, as the directional red and blue lines have diverged too much apart from each other. Stock price shown is in British Pound pence.
Fundamental Opinion
Centrica plc managed to improve its strategic planning and achieve very good profitability in the first half of 2015, far exceeding that of 2014. The company is now focusing more on the domestic consumer energy market, and not on gas drilling operations abroad, which does not fit this company’s profile in term of risks, rewards and the extremely competitive nature of the energy markets today. Because of the on-going price war between Saudi Arabia and US based producers, crude oil has been kept at very low prices, hurting the profitability of many oil producers, making too difficult for anyone to profit from either crude oil or gas drilling operations. This is one more reason why energy management and distribution to consumers is a much more stable and safer business. This is why Centrica focuses so strongly on consumers. And it goes beyond gas, the company currently owns several other subsidiary companies, and it is even investing in the nuclear energy sector, a sector which despite all the arguments is very competitive and is bound to become extremely profitable, gradually over the next 10 or 20 years. For the next 5 years now, Centrica is believed to do very well because of good management and strong focus on the utility energy business and gas in particular. But the other new ventures, into areas such as nuclear technology are also profitable, except that those have massive potential for growth, and will also take longer to fully exploit. The focus there is on nuclear storage technology, and in later years possibly on the next generation of reactors. Which will run on today’s nuclear reactors’ waste products and will have phenomenal efficiency. Centrica
Centrica plc annual operating profit, figures are in millions of GBP. The company made a loss £1,137m in 2014, which pushed stock price so low all the way to today’s levels at 226.80p. But strategic planning and strong management have already started to pay off, as during the first half of 2015 the company became quite profitable again, and the planning and changes are still going on to this day.
The fact that the worst is behind for Centrica, along with its good management during tough times in the global energy market, where it is becoming harder and harder for companies of all kinds to make money, shows that Centrica is a well-managed, far-sighted company. The stock price is expected to rise all the way back up to previous highs, near the 400p level, within the next 5 years. And no matter what happens in the energy market, to the price of crude oil or gas, Centrica is well prepared to handle rough waves in the energy market. People who understood the energy market and the consumer natural gas business in the UK, knew that the company would turn around, even during 2014, and long before balance sheet analysis could tell us so. This is because it is very easy for fundamental analysts and economists to make a mistake, they tend to tell us that energy prices will go higher and higher based on fundamental, finite resource analysis. While they ignore factors and game changing technologies which can keep prices low, or too low, so that some oil and gas drilling operations become uneconomic. Centrica’s CEO knew that the company had to adapt, diversify slightly, and focus on the gas consumer market, in a different way, allowing them to profit, slowly but steadily in whatever conditions. This is why the 400p price target is now a very realistic target for this stock.
