Centrica – what’s the latest on the stock?

Shares in Centrica have rallied an impressive 28% from February lows, keeping the 9-year sideways channel in play. Making the all-important break above the 200-day moving average in March was also significant, given that it’d been a significant hurdle since late 2013, so this is significant.

Recent news about British Gas losing nearly a quarter of a million customers in Q1 2016 is a concern for its owner Centrica, yet the number represents a mere 1.5% of domestic customers. Centrica actually has about 28 million customers in the UK and United States. In fact, despite this loss of custom (which is after all relevant to just one string in Centrica’s bow), Centrica appears on track to deliver on plans set out at its FY 2015 results on 18 February.

Of particular interest to shareholders and potential investors will have been a good performance thus far in exploration & production activities, which have of course benefitted from the rally in crude oil prices. Sentiment remains bullish on oil too, despite the failed Doha meeting and waning confidence that a solution to the supply glut will come from that part of the world.

Bullishness is in fact evident in a resurgence of demand for US Energy high yield corporate debt. Considering that sector as one that’s usually the preserve of more sophisticated investors, one might assume such ‘informed’ buyers are confident about an imminent rebalancing of the oil market.

Sure, Centrica overinvested in exploration & production in the run-up to the 2014 market top, but so did everyone else! That led to a 30% dividend cut that still leaves an attractive 5% yield at the current share price. That’s important because even though we’re seeing confidence in commodities, it’s yet to be seen in what state the crude oil market will settle. It must settle in order for companies like Centrica to take stock of it.

Fundamental analysis

Centrica shares are currently trading at 15.2x 12-month forward earnings, a 19% discount to the sector average. This makes Centrica possibly the most reasonably priced of all the UK’s listed utility companies along with National Grid. For us, Centrica wins out because if its higher exposure to the upstream and therefore potential for good capital gains, while offering the highest dividend yield in the sector at the current share price.

Centrica; 9-yr, monthly

Centrica; 2-year, daily

Technical analysis

The monthly chart illustrates the 9-year trading range for Centrica shares, while the daily chart shows the major failure of support at the end of 2016. With the 220p level now support once more, the integrity of the trading range has been restored. Shares have support at the key 200-day moving average, with oil prices at tentatively high levels. We’d expect shares in companies exposed to upstream oil & gas to remain under pressure in the near term.

With Centrica shares just about tracking their 200-day MA, the current outlook is just about bullish with the moving average coinciding with support in a narrow rising channel. Bears should watch out for a break below as a sell signal that could indicate further downside towards the 50-day MA and major support at the floor of the 9-year sideways range. If shares get down to there we may have an entry point for a long trade, while the journey south could be ridden with a short position.

What the brokers are saying

82% of brokers covering the stock are saying either 'Buy' or 'Hold' while just 18% say 'Sell.' The most bullish broker, Whitman Howard, is looking for 49% upside while Societe Generale currently has the lowest target price with its 'Sell' rating, seeing 24% downside. Consensus is neutral with an average target price of 238p, 3% away from the price as at the close on 22 Apr.

How can you take advantage of these potentially attractive share price moves?

Whether you see shares in Centrica going up or down in 2016, tradable opportunities will present themselves regularly. We’re here to help you weed them out and capitalise on them. Accendo Markets can help you increase your profit potential with our free, no nonsense research. We aim to deliver daily market reports and trade ideas direct to your inbox. We're execution only so there's no obligation to act - simply have a look and see what you think! You can sign up here to receive it.

CFDs: Like shares, but more flexible

Buying 1,450 shares in British Land @ £6.90 requires an outlay of around £10,000 plus commission (see purple box above left), while the same exposure via a CFD requires about £500 plus commission (see green boxes above right). If a trader invests in British Land, one would assume she believes the share price is likely to move in her favour. After considering the ‘worst case scenario’ and assigning funds to cover it,  the trader may conclude there’s little point in exposing the full £10,000  to the BLND shares - some of that capital could be put to good use elsewhere in the markets.

CFDs are leveraged instruments, but you don’t have to use the leverage

If you had, say, £10,000 to invest in the stock market, you could deposit that amount into a share dealing account and purchase shares in a company. You would pay commission to open the position, 0.5% in stamp duty and the full £10,000 will be tied up in your chosen shares with any profit or loss based on that exposure.

The same £10,000 worth of exposure can be secured with a CFD for a fraction of the initial outlay thanks to leverage, with the risk and reward the same as if £10,000 worth of traditional shares were held. But should you not be interested in leverage, you can always treat CFDs like shares. Simply deposit £10,000 into an Accendo trading account and take the equivalent CFD position which will tie up just £500 (note that overnight financing costs will still apply). The remaining £9,500 is not tied up, so you can use some of that to take advantage of another short-term opportunity elsewhere, or simply leave it on the account to support any losses. Best of all, using a CFD means you pay no stamp duty!

What’s your view?

Think shares will rise? Take a long position by buying (buy low, aiming to sell high). Think they’ll fall? Take a short position by selling (sell high, aiming to buy low). For a more detailed rundown of CFDs, their mechanics, associated costs and some trading scenarios click here.

How Accendo Markets can help you

We won’t tell you what to do - it’s your call whether you buy or sell. Our aim is to provide the help you need, if you need it. We’ll highlight opportunities which may be profitable to you, the investor, and assist you in making your own trading decisions. Our approach focuses on these 3 elements:

1. Education - not obligation
2. Observations - not recommendations
3. Assistance - not persistence

Our unique, award-winning service provides you with the help and tools you need to make appropriate trading decisions in the financial markets, both to grow and protect your capital. Just imagine how you’ll feel when you’re confident enough to make you own investment and trading decisions, rather than blindly following those of an expensive advisory broker who really has no better chance of calling the market than you anyway.

Before taking a position in the Index or Stocks, be sure to contact Accendo for…

• Updates - How does the index or your preferred stock look in terms of investor sentiment? News and broker updates can emerge daily affecting share prices. Optimism can switch to pessimism in the blink of an eye depending on what’s going on around the world.
• How to use CFDs and Spread Bets to maximise your profit potential.
• How to use the tools available to minimise the risk involved