Repeated Strategic Blunders And Regulatory Risks Weighing On Centrica

Contrary to what some seem to believe, utilities aren't foolproof toll-taking businesses that can be run on autopilot, but the U.K.'s Centrica (OTCPK:CPYYY) has committed a lot of unforced errors along the way. Although the company has done a good job of improving customer service and developing retail customer retention efforts, the company's foray into upstream oil and gas has destroyed value, and the company's efforts to generate growth from businesses like connected homes and distributed generation are uncertain at best. Making matters worse, aggressive pricing actions from competitors in the U.K. market has the government talking about taking a harder line on regulation and implementing more price controls.

Centrica offers a yield above 5%, and the company's cash flow should continue to grow from here (albeit slowly). With upstream capex now significantly de-prioritized, more of that cash could be directed towards shareholders once the company goes a little further with deleveraging. The shares look poised around fair value, with the potential of the growth opportunities balanced by the regulatory and competitive risks.

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Repeated Strategic Blunders And Regulatory Risks Weighing On Centrica