Is Centrica Share price Recovery a False Positive?

Summary:

Last week, Centrica's share price plummeted by 8.81% , continuing a bearish trend that had seen the company lose value in the previous weeks.

Last week, Centrica’s share price plummeted by 8.81 percent, continuing a bearish trend that had seen the company lose value in the previous two weeks. However, in today’s trading session, Centrica’s share price looks to be mounting a recovery, with prices already up by less than a percentage point but giving signals of a continuation of the bullish trend throughout the session.

Today’s recovery comes amidst revelations that more than half of Centrica’s carbon offsets are banned by the EU due to their poor reputation. Like a lot of companies that deal with fossil fuels, Centrica purchases credits from organizations that help reduce or avoid greenhouse gas emissions. This is referred to as offsetting and can involve activities such as planting trees and nature restoration projects.

While such an initiative is important in addressing climate change, data provided by Centrica to Open Democracy News showed 44 percent of the credits it purchased between July 2020 and June 2022 went to a Chinese chemical company called Shandong Dongyue Chemical Company. The report indicates Shandong Dongyue Chemical Company was using faulty offsetting data that the EU no longer recognizes due to its ineffectiveness in addressing climate change.

Although such a revelation is unlikely to translate into the markets and cause the share price to drop in the short term. The long-term reputational damage and lack of transparency in its environmental efforts could damage the company’s brand name.

Centrica Share Price Analysis

As stated above, the carbon offsetting controversy is unlikely to affect the long-term trend of Centrica’s share price. However, the current performance in the markets is likely to continue, which will see Centrica’s share price continue dropping, and possibly setting a new price low below the 70p price level.

There is also a high likelihood that, in the next few trading sessions, we might see Centrica’s price trading below the 65 price level. However, a trade above the 80p price level will invalidate my bearish outlook.