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While the owner of the leading legacy gas supplier in the UK appears to be getting its own house in order, with a recently-released positive financial update, there are other major, macroeconomic events at large, including the soaring rise of energy costs, and the Russia-Ukraine conflict.
With Europe's energy supply set to undergo a transition in the form of a pivot away from Russian energy, Centrica could be set for an upturn in investor focus. So what's the longer-term outlook for the stock - can it make consolidated gains and rise back above the PS1 level in 2022?
The Centrica share price has fallen a long way from 2013 highs that peaked above 400p, plummeting to just over 30p in April 2020. But the shares are now higher than they've been in more than two years, climbing 86.91% from the 52-week low of 45.21p on 30 July 2021, after closing at 84.50p last week. The shares are up 18.18% year-to-date, and 64.52% higher over the previous year. So, are the shares heading back to the 100p level last witnessed more than three years ago?
Soaring energy prices, which are particularly tough on the ordinary household, actually offer the chance for energy firms to boost profits, despite the additional costs. However, Motley Fool's Christopher Ruane points out that its energy trading business means that "moves in gas prices actually pose a risk of hurting the company's profits". Despite that risk however, Ruane says that as long as the "trading division stays on its toes, surging gas prices should turn out to be good for the company's profits".
More important than this though, according to Ruane, is the way Centrica has "dramatically reshaped itself" for the long term. The company has achieved this by selling Direct Energy, its US division, for PS2.7bn, while also agreeing to sell its Norwegian oil and gas assets.
These moves should help Centrica focus on its core operations, and "make it a more consistent financial performer", says Ruane, who believes it's positive for Centrica's long-term share price outlook.
Centrica's streamlining strategy may be paying off, judging by its latest results, released on 24 February. Operating profit rose 112% to PS948m last year, boosted by "surging profits from its North Sea oil and gas business", according to the FT, while revenue jumped 22.42%, from PS14.95bn to PS18.30bn.
The FT reports that 33 energy suppliers have gone bust from the energy crisis since January 2021, and British Gas has benefited from the fallout, with the industry regulator Ofgem transferring many of these customers to the UK's major energy supplier, which in turn has super-charged its customer base by a whopping 676,000.
The company, which has safeguarded itself against energy price rises via a hedging strategy, reports the FT, was also helped by the warmer-than-usual weather from October to December last year, which enabled it to sell previously-purchased gas and electricity, and "cash in on high energy costs".
A recent report from Goldman Sachs, titled Carbonomics, suggests the Russia-Ukraine conflict is "a turning point for the energy sector", and is likely to see increased adoption of liquified natural gas (LNG) over the medium-term. The report says this will be driven by a major increase in renewable power and network infrastructure capex, but also by the revival of traditional fuels, in particular LNG, which is needed to enable "a more resilient and affordable energy transition".
The seasonal nature of the European energy crisis - meaning winter demand for gas is more than double that of summer - means that imported LNG and hydrogen will be needed, alongside the growth of renewable power. The low carbon infrastructure which is required for renewables will, the reports says, take several decades to be built. This is where LNG comes in, as a "key transition fuel that both improves security of supply and offers a lower-carbon alternative to coal-fired power generation". The report identifies approximately $139bn of new LNG projects due to be sanctioned globally over the next 5 years.
With British Gas's position as the UK's number one energy provider reinforced after the influx of hundreds of thousands of customers from those suppliers forced out of business, it's set to play a major role in this new energy era, and the Centrica share price could see a similar uplift in the medium term.
With three Buy, eight Outperform, six Hold, and one Sell rating with the FT, the consensus analyst recommendation on Centrica stock is a positive Outperform. The 14 analysts offering 12-month price targets for Centrica have a median target of 87.50p, with a high estimate of 130.00p and a low estimate of 50.00p. The median estimate represents a 3.55% increase from Friday 25 March's close at 84.50p.
The overall analysts' view is certainly upbeat, and Motley Fool's Ruane echoes that, saying, "with the wind in its sails, I think the Centrica share price could keep climbing and may reach PS1 this year." We'll have to wait and see on that prediction, but Centrica's share price prospects appear to be brighter than they have been for some time.
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