Is the Centrica share price heading for 55p this year?

The Centrica (LSE: CNA) share price just keeps falling. When I last looked at the shares they were around 95p. At the time of writing, theyre trading at 88p. After losing 70% of their value in five years, how much lower will CNA stock go?

Worst-case scenario?

Since Centricas flotation 25 years ago, the shares have never traded lower than about 55p, in 1996. Could we see the owner of British Gas head back down to that level this year? Its not impossible.

Based on current broker forecasts for adjusted earnings of 8.5p per share in 2019, the stock would have to trade on a price/earnings ratio of about 6.5 for the share price to hit 55p.

As things stand, I think thats unlikely. But if Julys interim results include a profit warning and a dividend cut, then a lower share price could make sense.

In May, Centrica boss Iain Conn promised Julys half-year figures will also include details of updated future expectations, a strategic update and an update to the Groups financial framework. All of these could be code words for bad news, although we cant be certain of this.

Heres what I do know

What we can be certain of is that the firms performance has been consistently disappointing for years. As my colleague Rupert Hargreaves pointed out recently, the group has destroyed about 2bn of shareholder equity over the last five years.

Even as a shareholder, I agree with Ruperts view that the dividend will need to be cut again. Analysts expect last years payout of 12p per share to be cut to 8.3p. I think a figure of 6p might be more realistic.

For new buyers, that would give a 6.8% dividend yield. But for shareholders whove held the stock a couple of years, the yield on cost would be less than 3%. Thats not really what Id hope for from a utility stock.

Can Centrica survive?

You may even be starting to wonder if Centrica can survive at all. Personally, I think the business remains important and relevant. Even after last years 3% fall in customer accounts, British Gas still supplies electricity and gas to 23.7m UK households. And, as Ive said before, I think the companys power generation and energy distribution services will also remain in demand.

However, I dont have a clear view on how the business is likely to evolve in a world where renewables and decentralised generation are likely to become much more important. And I dont think this is a business that can survive simply by cutting costs. I believe that significant, ongoing investment will be needed to support longer-term growth. This could be hard to afford if customer numbers keep falling.

Im also wary about the risk that a Labour government might follow through on its promises to renationalise utilities.

My decision:

Im sitting on a big loss on my Centrica shares. But I thought last years results contained some glimmers of hope. So for now, my plan is to sit tight and wait until we have more news about the outlook for the business.