Centrica shares set to come under pressure with H1 earnings unlikely to impress

Centrica will unveil its half-year results on Friday 24 July, with its latest set of earnings likely to disappoint investors and apply downward pressure on its share price as the impact of Covid-19 on the business is laid bare for all to see.

The coronavirus pandemic has taken a significant toll on the British Gas owner, with the energy provider revealing a £1.1 billion loss in 2019 and forced to suspend its dividend in a bid to bolster its balance sheet.

Adding to Centrica’s woes are ongoing talks with trade union representatives over plans to cut 5000 employees from its workforce in an attempt to cut costs to help it offset weakening demand for energy amid the Covid-19 outbreak.

‘As the scale and length of the crisis unfolds, it is becoming increasingly clear what a vital role so many of the Centrica team perform to keep our communities warm, safe and supplied with energy,’ Centrica Group CEO Chris O’Shea said.

‘While there are so many uncertainties surrounding the impacts of this situation, I am confident that we have acted promptly and prudently to underpin the long term strength of Centrica.’

Centrica is trading at 41p per share at the time of publication, with the stock down 53% year-to-date.

Credit Suisse upbeat while UBS eyes Centrica’s stock slump

Analysts at Credit Suisse remain optimistic about Centrica’s share price trajectory in 2020, with the Swiss investment bank reiterating its ‘outperform’ rating for the stock and issuing a target price of 70p – implying a potential upside of 70%.

However, analysts at rival Swiss investment bank UBS believe the stock will fall over the next five months of the year, with the lender reiterating its ‘neutral’ rating and issuing a 30p price target for the stock – implying a potential downside of -26%.

Its clear that analysts remain torn about the direction of Centrica’s share price. But it is worth noting that the stock has struggled to move much in either direction since the Covid-19 crisis hit, with price action ranging between 35p – 44p since May.

Centrica: Technical Analysis

After the first quarter’s brutal sell-off, Centrica has been trying to recover, regaining more than 40% from the mid-April lows pushing back above the psychological £40 level, according to Victoria Scholar, market analyst and presenter at IG.

‘The last three months have seen the stock trade in an ascending trendline with a series of higher highs and higher lows, breaking above the 100-day simple moving average,’ Scholar said. ‘However it is yet to test resistance at the 23.6% Fibonacci retracement line.’

‘Meanwhile a bearish crossover from the stochastic oscillator could also forewarn of potential weakness in the uptrend. Look for resistance at the recent peak at £46.16 and support at the April low at £29.09,’ she added.

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