I called the Centrica (CNA) share price top: What next?

Centrica (LON: CNA) share price has done well since 2020 as energy demand jumped in the UK and other countries. The stock surged from a low of 27.80 in March 2020 and then surged to a high of 172.65p in 2023. In this period, it has outperformed the FTSE 100 index and its top constituent companies like Tesco and Sainsbury’s. It has also done better than energy companies like BP and Shell.

Why CNA stock jumped and what next

Centrica is a giant energy company in the UK that operates in several brands. It owns British Gas, a company that supplies energy to millions of people in the UK. It has over 7.52 million residential customers and 3.14 million service customers.

The company also owns Centrica Energy, a company that trades power, gas, LNG, and energy attributes. Bloomberg has a very interesting report about how energy trading companies are making a killing in the industry. This industry is expected to have robust growth in the coming years.

Centrica owns Bord Gais Energy, which supplies energy to Ireland and Centrica Business Solutions which partners with companies. Most importantly, in its upstream business, the company has gas and oil exploration services.

Therefore, the company has benefited from the energy challenges in the past few years. Its upstream business benefited from the Russian invasion of Ukraine, which pushed gas prices higher. As natural gas prices dropped in 2023, its British Gas and Bord Gais businesses thrived because of higher margins.

All this is captured better by Centrica’s financial results. Its annual results published in July showed that its operating profit jumped to £2.1 billion, up from £1.3 billion in the previous year. Similarly, its operating profit of £6.5 billion was higher than a £1.1 billion loss a year earlier.

The challenge for Centrica is that natural gas prices are still under pressure because of robust production from the United States and Qatar. Russia is also selling vast amounts of gas despite western sanctions. At the same time, the price cap for a typical consumption is expected to drop by 14% in the second quarter. These trends could have an impact on Centrica’s margins.

CNA chart by TradingView

My last CNA stock forecast worked out well. In that article in September, I warned that the stock was extremely overbought and predicted a pullback. This retreat has happened and the stock is 16.7% below that level.

On the weekly chart, we see that the Centrica stock price has formed a descending channel pattern. To some extent, this pattern has a resemblance to a bullish flag, which is a good sign. The stock also remains above the 50-week moving average.

Therefore, the outlook for the stock is neutral with a bullish bias. I suspect that this bullish breakout will happen after the company publishes its results on February 15th.