its price-to-earnings (P/E) ratio of 6, Centrica (LSE: CNA) could seem low-cost. On high of that, on the present Centrica share price, the British Gasoline proprietor yields 3.1% — not an enormous dividend however nonetheless respectable for my part.

Even higher, at its interim outcomes level, the FTSE 100 agency was sitting on a internet money pile of £3.2bn.

So, whereas it has a market capitalisation of £6.9bn, when discounting for that money pile, the market is principally assigning it a worth of beneath £4bn.

May this be the type of discount I wish to add to my portfolio?

Huge model, huge money technology potential

British Gasoline actually has its issues.

Repeated examples of horrible customer support have battered the corporate’s repute through the years. In the meantime, the long-term demand image for gasoline appears bleak. Gasoline utilization within the UK has been in decline for a few years and appears set to proceed on that trajectory.

However whereas demand could also be falling, it’s nonetheless substantial. British Gasoline (alongside different manufacturers Centrica owns) is well-known even when it isn’t broadly beloved. That offers Centrica pricing energy.

In the meantime, the enterprise has an vitality buying and selling enterprise which means its fortunes should not essentially tied to ongoing demand for gasoline within the British Isles.

As the online money place exhibits (Centrica was indebted just some years again), this can be a firm that is ready to generate sizeable quantities of money. I feel that might proceed to be the case.

Laborious to evaluate whether or not that is truly a discount

Regardless of that, I’ve no plans so as to add Centrica shares to my portfolio even when the present price could appear to be a discount.

A postponed plan to ban the sale of recent gasoline boilers could prolong the lifetime of home gasoline utilization within the UK. However the long-term development is evident: Centrica’s core enterprise might shrivel away over time.

I additionally am involved by the dangers posed by adjustments in vitality costs, particularly for the buying and selling division. Whereas Centrica made a post-tax revenue of £3.9bn final 12 months, the prior 12 months had seen a £0.8bn loss. That type of volatility in earnings could make me uncomfortable.

On condition that type of volatility, it isn’t clear to me whether or not the low P/E ratio represents the type of discount it could initially appear to.

Why I’m not investing

Stripping it again to fundamentals, I stay unconvinced in regards to the long-term potential for Centrica’s enterprise.

It has strengths, together with a buyer base that continues to be giant even when it was a lot smaller than it as soon as was. However the demand outlook is bleak and in the long run I see actual dangers to Centrica’s present enterprise mannequin.

So I’ve no plans to place my cash into shopping for Centrica shares for my portfolio.