Should I buy Centrica shares in 2022?

Shares in British Gas owner Centrica (LSE: CNA) have had a good run. Over the last year, the energy provider’s share price has risen by around 40%, easily outperforming the wider UK market.

Here, I’m going to take a look at the investment case for Centrica shares right now. Is the stock worth buying for my portfolio?

Three reasons to buy Centrica shares today

From an investment perspective, there are a number of things to like about Centrica today, in my view. For starters, the company is doing well at the moment as it’s benefiting from higher energy prices.

In an update posted earlier this week, the group said it had delivered a “strong operational performance” in the first four months of 2022, It added it currently expects full-year adjusted earnings per share to be around the “top of the range” of more recent analyst expectations. This is encouraging.

It’s worth noting that analysts currently expect Centrica to post revenue of £20.03bn and earnings of 7.28p this year. That would represent growth of 9% and 78% year-on-year respectively.

Secondly, the company has ‘defensive’ attributes. In a recession or economic downturn, people still require its products. This is a valuable attribute right now, to my mind. I think there’s a real chance of a recession in the near future.

Finally, the valuation seems quite reasonable. At the current share price, Centrica sports a forward-looking price-to-earnings (P/E) ratio of just 10, falling to 7.5 if we use next year’s earnings forecast.

Analysts at Barclays clearly see value at that multiple. They have a 112p price target, which is about 45% higher than today’s share price.

Risks to consider

I’m not 100% bullish here though. One issue that concerns me is there are plenty of things that could hurt performance in the near term.

In its recent update, Centrica said that “significant uncertainties remain” in relation to 2022. These include the impact of weather, commodity price movements, asset performance, and the potential for increased bad debt charges in the current inflationary environment.

It added that in British Gas Services & Solutions, it had seen supply chain disruption and higher inflation impacting both the cost base and customer demand. The group expects these headwinds to offset underlying operational progress in the near term.

Another issue is that Centrica has little control over its pricing. On the upside, prices are limited by Ofgem’s price cap. Meanwhile, prices can fall to the downside when energy demand is low. This means revenues and profits here are hard to forecast.

The lack of dividend is also an issue. Several years ago, Centrica abandoned its dividend and it’s yet to resume payouts to shareholders. This is a big turn-off for me. If I was going to add a utility stock to my portfolio, I would want a healthy dividend.

Better stocks to buy?

Weighing all of this up, I won’t be buying Centrica shares for my portfolio. Overall, I think there are better stocks to buy today.