With the oil and gas industry experiencing an exceptionally challenging period, Centricas (LSE: CNA) decision to sell up and walk away from the sector seems to be the right move. Clearly, the company has been forced to endure a severe fall in profitability from its oil and gas assets, but under a refreshed strategy it will become a more focused supplier of domestic energy over the coming years.
In doing so, Centrica hopes to deliver around 750m per year in cost savings by 2020 and this should help alleviate the intense pressure onits bottom line in recent years. For example, Centricas earnings fell by 28% in 2014 and are expected to have declined by a further 8% in 2015.
Furthermore, a more stable business model thats not as exposed to changing commodity prices should provide scope for further dividend increases in future years. In turn, this could cause investor sentiment to improve and push Centricas share price higher after its slump of 23% in the last year. With the companys shares trading on a price-to-earnings (P/E) ratio of 11.7 and yielding 6%, they offer income, value and major turnaround potential.
Long-term confidence
Similarly, energy support services company Lamprell (LSE: LAM) is also finding life difficult in a low oil price world. Its bottom line is expected to have fallen by 45% in 2015 and with a further 2% decline expected to be recorded in 2016, investor sentiment could worsen. This could push Lamprells share price even lower in the coming months after its disappointing start to 2016 thathas seen its valuation decline by 17%.
However, with Lamprell trading on a P/E ratio of just 7.3, it offers considerable upward rerating potential. And with its current projects being on track according to its most recent update, and Lamprell gaining an advantage from the early implementation of efficiency measures, theres scope for improved financial performance in the long run. Furthermore, with Lamprell due to raise dividends by 60% this year, investor sentiment could pick up due to rising shareholder payouts indicating Lamprells confidence in its long-term financial outlook.
The dragon wakes?
Meanwhile, shares in one of Chinas largest gas producers Green Dragon Gas (LSE: GDG) have risen by over 40% today even though no significant news flow has been released. According to its most recent production update, which was released around three weeks ago, Green Dragons operations are performing ahead of expectations and its 2015 year-end exit rate gross production target was surpassed.
In fact, Green Dragons gross production rate rose by 36% from 2014 to 2015. With there being tremendous scope for further infrastructure development and the connection of wells to the production network from the existing 1,977 drilled wells, Green Dragons shares could make further gains over the medium term.
Clearly, Green Dragon is a lossmaking entity and gas prices could come under further pressure if the price of oil continues to deteriorate. However, with production set to increase rapidly, for less risk-averse investors Green Dragon could be worth a closer look.
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Peter Stephens owns shares of Centrica. The Motley Fool UK has recommended Centrica. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
