Interactive Investor

Chart of the week: time to get excited about cheap Centrica shares

27th June 2022 15:01

John Burford from interactive investor

Gas is getting cheaper, but will Centrica benefit? Analyst John Burford has a hunch that it will and names a price target for the shares.

I am veering a little off-piste this week with coverage of Centrica (LSE:CNA), owner of British Gas, which has had very little favourable press coverage for years. It ranks very low in consumer satisfaction reports, and the share price has suffered badly as sentiment has become very negative.

In fact, utility customers have been switching in high numbers, sometimes with poor results as many newbies have floundered (out of the frying pan and into the fire!). But British Gas still remains the largest UK domestic energy supplier.

And with extremely high wholesale energy prices making the usual advice to 'shop around' redundant, the retail energy market has been thrown into disarray, and government intervention has been deemed necessary. Consumer price caps are now the rule.

Surging energy prices are dominating the financial headlines. Many are forecasting further hikes – and that is why odds are growing that they are about to stage at least a major correction.

Interestingly, wholesale natural gas prices have tumbled in recent days, with the London natural gas price having halved since 16 June. That is one major correction!

And if the energy suppliers hedge forward purchases now, they would stand to benefit from huge margins over the soon-to-be higher price caps this autumn.

The implication is stark – huge profits await energy companies if they follow this path.

Here is the long-term price chart:

Past performance is not a guide to future performance.

The shares have been in a nine-year bear market as customers have left British Gas in droves. But is the tide now turning as consumers see the benefit of moving back to an established player that is highly unlikely to fold, as so many newcomers have? 

After all, there is little price differential between companies in this era of price caps.

I believe the odds are that the company will re-introduce a dividend as soon as margins are set to improve. That should boost the share price and I have a target at the 150p area and could possibly move higher.

John Burford is a freelance contributor and not a direct employee of interactive investor.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.


We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.

Please note that our article on this investment should not be considered to be a regular publication.

Details of all recommendations issued by ii during the previous 12-month period can be found here.

ii adheres to a strict code of conduct.  Contributors may hold shares or have other interests in companies included in these portfolios, which could create a conflict of interests. Contributors intending to write about any financial instruments in which they have an interest are required to disclose such interest to ii and in the article itself. ii will at all times consider whether such interest impairs the objectivity of the recommendation.

In addition, individuals involved in the production of investment articles are subject to a personal account dealing restriction, which prevents them from placing a transaction in the specified instrument(s) for a period before and for five working days after such publication. This is to avoid personal interests conflicting with the interests of the recipients of those investment articles.