The Centrica (LSE: CNA) share price has been engaged in a relentless down-trend for around seven years. Since the autumn of 2013, the stock has fallen by around 90%, crashing out of the FTSE 100 this year on the way down.
You don’t need me to tell you it’s been a terrible investment for its shareholders. And I wouldn’t rush in to buy the shares now for their recovery potential. Indeed, the company has been suffering from poor trading for a long while.
Why the Centrica share price has been falling
Customers have been abandoning the company’s energy supply arm, British Gas. And the firm’s upstream operations have suffered from weaker oil prices. Of course, the arrival of the Covid-19 pandemic hasn’t helped matters, but Centric is trying hard to turn its business around.
Part of the strategy involves simplifying operations with asset sales. And the recently announced agreement to sell the North American energy supply, services and trading business, Direct Energy, will help. The deal is worth around £2.85bn and will go some way to reduce Centrica’s gargantuan debt on its balance sheet.
However, less encouraging is the news that the divestment process for the its Nuclear assets has been “paused”. And the firm’s Spirit Energy E&P divestment process will restart “once commodity and financial markets have settled.” I can’t help thinking we’ll be in for a long wait for that one.
Generally, I’m not a big fan of investing in businesses that have been under-performing for years in the hope they can turn themselves around. And I’m even less enthused by the idea when a company carries a big weight of debt like Centrica does. The company may succeed, but it operates in a difficult and cyclical sector.
Here’s where I’d invest right now
Instead, I’d rather look for enduring FTSE investments in stronger sectors. For example, medical devices company Smith & Nephew looks set to recover well from the coronavirus setback. City analysts have pencilled in a more than 50% resurge in earnings for 2021, which should move profits higher than before the crisis. Meanwhile, the share price continues to languish well down from its highs.
In the fast-moving consumer goods sector, there are a couple of interesting recovery plays I’d go for instead of Centrica. One is the FTSE 250’s PZ Cussons, which has been rising on turnaround hopes after experienced FMCG chief executive Jonathon Myers took the helm in May. And I like the look of Premier Foods, which is experiencing resurgent profits following a programme to re-vitalise its brands. The company is further along the recovery trail than PZ Cussons but still looks like a decent investment to me.
There are many other shares I’d rather buy than Centrica too. But in the current environment with coronavirus and general economic weakness, I’d also be interested in buying tracker funds. Sometimes broad-brush investing can be a good option, particularly if you hold your investments for decades. For example, I’d be keen to find trackers that follow the FTSE 100 index, the FTSE 250 and America’s S&P 500 to begin with.
