Centrica’s share price is up by 20%. Is it time to buy?
The Centrica (LSE: CNA) share price rocketed 20% higher on Friday morning. The firm revealed a surprise £2.85bn bid for its North American business, Direct Energy, and an increase in profits from its core UK consumer business.I’ve been viewing Centrica as a value buying opportunity for some time. The latest news from the company confirms my belief that the stock remains very cheap at current levels.5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…What’s new?The owner of British Gas has been trying to raise cash for a while by selling its North Sea oil and gas business and its nuclear power stations. However, these efforts have been put on hold by the coronavirus pandemic and financial market crash.Centrica’s North American business wasn’t seen as such an obvious choice for a sale, but it fits well with new boss Chris O’Shea’s simplification strategy.More importantly, the £2.85bn cash bid from US utility group NRG Energy will enable O’Shea to “reduce net debt significantly” and make a sizeable contribution to the group’s pension schemes. These measures are badly needed. Centrica’s net debt was £2,779m at the end of June, while its pension deficit stood at £522m.I’m not surprised to see Centrica’s share price respond so strongly to the Direct Energy offer — I think a sale will provide a quick fix that’ll help the company move forwards.Rising profits should have further to goI think Centrica’s core UK consumer business is probably undervalued at the moment. Today’s half-year results seem to support that view. Excluding the US business that’s now been sold, consumer profits rose by 40% to £229m.I’ve doubled this figure to give a full-year estimate of £458m. Crunching the numbers suggests to me this would give a price/earnings ratio of about 10 at Centrica’s current share price. That’s without adding in any contribution from the group’s other operations.Looking ahead, I think the British Gas home services business has significant growth potential. This division provides services such as boiler installation and maintenance, as well as a wider range of insurance and home repair services.FTSE 250 firm Homeserve is probably the UK market leader in this sector. Its shares trade on 30 times forecast earnings. If British Gas is well managed, I think it should be able to succeed in this market.Centrica share price: No dividend yet but I’d keep buyingThe only slight disappointment in Centrica’s half-year results was that the group won’t be declaring an interim dividend. Last year’s final dividend was cancelled too. This means shareholders will have to go at least 12 months without a payout.However, fixing the group’s balance sheet and restructuring its operations must take priority. I’d expect dividends to make a return next year and am happy to take a long view here.I own a sizeable slice of Centrica shares and I plan to continue holding. I believe this business should be worth significantly more in the future. I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement. Image source: Getty Images. Roland Head | Friday, 24th July, 2020 | More on: CNA Centrica’s share price is up by 20%. Is it time to buy? See all posts by Roland Head Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge! Roland Head owns shares of Centrica. The Motley Fool UK has recommended Homeserve. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. “This Stock Could Be Like Buying Amazon in 1997” I’m sure you’ll agree that’s quite the statement from Motley Fool Co-Founder Tom Gardner.But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.What’s more, we firmly believe there’s still plenty of upside in its future. 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