The Centrica share price is down heavily this Friday, down 2.62% as of writing after investment bank HSBC downgraded the investment outlook on the stock.
HSBC cut its recommendation on Centrica to “reduce” (hold). This downgrade looks set to halt the stock’s progress in the last few months, in which it has risen from a trough of 45.20 in July 2021 to highs near 84.42p in March 2022.
The UK’s biggest energy supplier and owner of British Gas perhaps had this recommendation coming for some time now, despite its being in the strongest position it has been in nearly a decade. British Gas has seen its market share erode from 44% to 28% in the last ten years. It has also lost market share in the electricity business and is now competing with other companies offering similar products at competitive prices.
Centrica has seen a jump in revenue from higher oil prices and the acquisition of customers from energy companies that have gone bust. But these customer acquisitions have come at a cost. The company’s returns are underperforming the industry by 7.6% per annum. As a result, the Centrica share price looks due for correction even as the downgrade from HSBC was long in coming.
Centrica Share Price Outlook
The descending triangle on the daily chart could serve as a topping pattern if the price breaks below the lower border at 77.64. This breakdown opens the door to a measured move which initiates a price correction towards the 72.08 support (4 January and 24 February lows). The 75.50 support (22 February and 14 March lows) forms an intervening pitstop. If the price correction extends below the measured move, 69.60 and 65.18 (16 November and 20 December 2021 lows) serve as additional targets to the south.
On the other hand, a bounce on the 77.64 support, which ends up breaking the 79.88 resistance (9 February and 6 April highs) will invalidate the pattern. At this stage, the 82.18 resistance barrier (23 March high) becomes the next upside target. After that, an extension of the advance will contend with the psychological resistance at 84.00 (25 March high) before the 85.78 multi-year barrier (17 December 2019 and 10 January 2020 lows in role reversal) comes into the mix as another northbound target.