There are things to love and loathe about most companies. Today, I’m going to tell you three things to love about Centrica (LSE: CNA) (NASDAQOTH: CPYYY.US).
I’ll also be asking whether these positive factors make this FTSE 100 utility company a good investment today.
Management
As the table below shows, Centrica has the longest serving chief executive of the Footsie’s five utility groups.
| Company | Chief Executive Atart Date |
|---|---|
| Centrica | 2006 |
| National Grid | 2007 |
| Severn Trent | 2007 |
| United Utilities | 2011 |
| SSE | 2013 |
Sam Laidlaw became Centrica’s chief executive on 1 July 2006. Now, the dates in the table may not say much about the longevity of the average Footsie CEO these days, but Laidlaw’s seven years’ tenure does make him the most experienced of the five utility bosses.
Geographical diversification
Centrica is one of only two of the Footsie utility groups with substantial operations outside the UK. National Grid ranks first, with non-UK business providing 30% of total group operating profit; but Centrica’s 28% also represents significant geographical diversification.
Furthermore, Centrica is intent on expanding its US business. The recent purchase of a Texas-based energy retailer and a transformative Eastern US acquisition for Centrica’s business-to-business operations will further up the percentage of the company’s non-UK profits.
Shareholder total returns
Centrica has never been the highest-yielding utility on the block, but — as the table below shows — the company does have one of the best records of total return (capital appreciation + dividend) over the medium term and long term.
| Company | 5-year annualised total return (%) |
10-year annualised total return (%) |
|---|---|---|
| Severn Trent | 8.2 | 10.0 |
| Centrica | 7.6 | 10.9 |
| SSE | 5.7 | 13.2 |
| National Grid | 4.9 | 7.8 |
| United Utilities | 3.2 | 8.6 |
Source: Morningstar
A good investment?
Experienced management, geographical diversification and a good record of delivering value for shareholders are certainly attractive qualities. But how about valuation?
At a recent share price of 386p, Centrica is on a current-year forecast price-to-earnings (P/E) ratio of 13.8 and dividend yield of 4.5%. With analysts expecting earnings and dividend growth in the 6-7% region next year, the P/E falls to 12.9 and the yield rises to 4.8%.
Centrica currently appears reasonable value overall — although if you’re after a super-high starting income you’d be better to look at some of the company’s sector peers.
Indeed, the Motley Fool’s chief analyst has just declared one of these peers to be the UK’s top income stock. You can read our leading analyst’s in-depth evaluation of the company in this exclusive report. Just click here — it’s free.
> G A Chester does not own any shares mentioned in this article.