Headquartered in the United Kingdom, energy services and solutions company Centrica plc (CPYYY) supplies gas and electricity to residential, commercial, and industrial customers in the United Kingdom.
The company also provides associated installation, repair, and maintenance services; procures, trades, and optimizes energy; and sells the power generated from nuclear assets.
Over the past three years, CPYYY’s revenue increased at a 22.3% CAGR, while its EBITDA has grown at a 36.2% CAGR over the same time horizon. Moreover, CPYYY’s total assets increased at a 17% CAGR over the past three years.
Having announced its intention to exit gas supply agreements with Russian counterparties in March, energy security through the supply of gas and renewable power has been bolstered through new agreements, including one with Equinor to deliver an additional 1 billion cubic meters of gas supplies to the United Kingdom for last winter and the following two, sufficient to heat a total of 4.5 million homes.
Moreover, it is also investing in the energy transition through the construction of lower-carbon flexible power generation assets and the progression of energy transition opportunities for its existing assets.
CPYYY’s shares have gained 10.1% over the past month and 81.6% over the past six months to close the last trading session at $5.54, above its 50-day and 200-day moving averages of $5.18 and $4.31, respectively.
The stock has a 24-month beta of 0.54 and a relatively low spread between its 52-week high and 52-week low prices of $5.93 and $2.94, respectively.
Let’s discuss what makes the stock worthy of investment.
Robust Financial Performance
For the fiscal year that ended December 31, 2022, CPYYY’s group revenue increased by 61% year-over-year to £23.74 billion ($29.67 billion), while its gross profit increased by 25.5% year-over-year to £2.05 billion ($2.56 billion).
During the same period, the group total adjusted EBITDA increased by 115.8% year-over-year to £3.99 billion ($4.99 billion), while the group total adjusted operating profit came in at £3.08 billion ($3.85 billion) compared to £948 million ($1.19 billion) during the previous fiscal year.
Consequently, CPYYY’s adjusted earnings attributable to shareholders, excluding Spirit Energy disposed assets, came in at £2.01 billion ($2.51 billion) or 34.2p per share, compared to £162 million ($202.47 million) or 2.8p during the previous fiscal period.
CPYYY’s total assets stood at £29.04 billion ($36.30 billion) as of December 31, 2022, compared to £27.07 billion ($33.83 billion) as of December 31, 2021.
Impressive Profitability
CPYYY’s trailing 12-month gross profit margin of 41.05% is 8.9% higher than the industry average of 37.7%. Similarly, the company’s trailing-12-month EBITDA margin of 36.79% is 15.6% above the industry average of 31.8%. Moreover, CPYYY’s trailing-12-month Return on Total Capital (ROTC) of 81.82% compares to the industry average of 3.80%.
Positive Outlook
CPYYY’s revenue for the fiscal year ending December 31, 2023, is expected to come in at $49.05 billion, up 21.6% year-over-year. The company reinstated a progressive dividend in 2022 with an interim dividend of 1.0p per share and a proposed final dividend of 2.0p per share.
Moreover, as a testament to its management’s confidence in the prospects of the company, CPYYY has decided to extend its share repurchase program of £250 million ($312.46 million), which commenced in November 2022 and is projected to be completed by May 2023, by an additional £300 million ($374.95 million).
The ongoing share repurchase program should also increase the intrinsic value of the holdings of the existing shareholders.
Attractive Valuation
Despite the uptrend in its price, CPYYY’s stock is trading at a discount compared to its peers, indicating a potential for further upside.
CPYYY’s forward EV/Sales and EV/EBITDA multiples of 0.15 and 2.20 are 96.3% and 80.5% lower than the respective industry averages of 3.96 and 11.32. Moreover, CPYYY’s forward Price/Sales multiple of 0.16 also compares favorably with the industry average of 2.18.
POWR Ratings Reflect Investment Worthiness
CPYYY’s fundamental strength is reflected in its overall A rating, which equates to a Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. CPYYY has an A grade for Growth, consistent with its impressive track record. CPYYY’s positive outlook is reflected in its B grade for Sentiment. It also has a B grade for Quality, in sync with its impressive profitability.
Unsurprisingly, CPYYY tops the list of 55 stocks in the B-rated Utilities - Foreign category.
In addition to the above, all POWR Ratings of CPYYY can also be found here.
Bottom Line
Faced with rising energy bills and wider inflationary impacts, especially since the beginning of the conflict in Ukraine, CPYYY has been proactive in balancing its financial performance with responsible stakeholder management. For the longer term, CPYYY is increasingly engaging in the third phase of its turnaround strategy to deliver growth and position itself for net zero.
With robust fundamentals and future-focused management, CPYYY appears well-positioned to deliver sustainable growth in the foreseeable future. Hence, this A-rated stock might be an ideal pick for growth-seeking investors.
How Does Centrica plc (CPYYY) Stack Up Against Its Peers?
While CPYYY has an overall POWR Rating of A, which equates to a Strong Buy, and also tops its industry, investors could also consider looking at other A-rated (Strong Buy) stocks in the Utilities–Foreign category: Tokyo Gas Co., Ltd. (TKGSY), PT Perusahaan Gas Negara Tbk (PPAAY), and Central Puerto S.A. (CEPU).
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CPYYY shares were trading at $5.40 per share on Tuesday morning, down $0.14 (-2.53%). Year-to-date, CPYYY has gained 18.42%, versus a 7.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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