Goldman Sachs adds SSE to Conviction sell list, trims target on Centrica

Lower gas prices spell trouble for utilities companies in Europe, especially so for SSE which will see the pressure pile up on its dividend and undermine its premium rating, Goldman Sachs said.

Oversupply in global liquid natural gas markets was set to drive European gas prices down by more than 20% in 2017-2019.

Things would be even worse in the medium-term, with Goldman slashing its price forecasts by up to 30%.

The UK, Italy, France and Iberia would be the most impacted, Goldman said.

With the above in mind, it added SSE to its conviction list as a 'sell'.

"We expect EPS to fall 19% in 2015-20E, and our forecasts are 10%-20% below Reuters consensus in FY18-19E at EPS and more than 40% below at DPS."

Another London-listed stock for which Goldman´s new forecasts implied a "material" deterioration in earnings was Drax.

In the same report Goldman lowered its view on Centrica to 'neutral' from 'buy' and trimmed its target price by 5% to 215p.