Centrica plc (LSE:CNA), a GBP£8.17B large-cap, operates in the utilities industry which faces recent trends of rising cybersecurity threats, increasing usage by consumers and growing number of innovative competitors. Utilities analysts are forecasting for the entire industry, a strong double-digit growth of 16.23% in the upcoming year , and a strong near-term growth of 14.06% over the next couple of years. However, this rate came in below the growth rate of the UK stock market as a whole. In this article, I’ll take you through the energy sector growth expectations, and also determine whether Centrica is a laggard or leader relative to its utilities sector peers. View our latest analysis for Centrica
What’s the catalyst for Centrica’s sector growth?
Going forward, utility companies face the threat of new entrants and disruptive technologies, growth in renewable generation, and aging assets, just to name a few. In the past year, the industry delivered negative growth of -2.14%, underperforming the UK market growth of 11.51%. Centrica leads the pack with its impressive industry-beating growth rate of 20.95% in the upcoming year.
Is Centrica and the sector relatively cheap?
The multi-utilities sector’s PE is currently hovering around 20x, relatively similar to the rest of the UK stock market PE of 18x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 6.95% compared to the market’s 12.77%, potentially indicative of past headwinds. On the stock-level, Centrica is trading at a lower PE ratio of 14x, making it cheaper than the average multi-utilities stock. In terms of returns, Centrica generated 19.36% in the past year, which is 12.41% over the utilities sector.
What this means for you:
Are you a shareholder? Centrica’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. In addition to this, its PE is below its utilities peers, suggesting it is also trading at a relatively cheaper price. Perhaps the market hasn’t fully accounted for the growth, meaning now may be the right time to accumulate more of Centrica, if you’re not already highly concentrated in the company.
Are you a potential investor? If Centrica has been on your watchlist for a while, now may be the best time to enter into the stock. Its industry-beating growth prospects have not been fully priced into its shares given its lower PE ratio relative to its peers. Before you make the decision to buy, I recommend you look at other fundamentals factors and see whether there is a reason why the stock may be trading at a discount in the utilities sector.
For a deeper dive into Centrica’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other utilities stocks instead? Use our free playform to see my list of over 300 other utilities companies trading on the market.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.