Centrica shares are cheap after recent weakness, says JPMorgan

JPMorgan has maintained an 'overweight' position on energy and services company Centrica, saying the stock's current valuation is "undemanding" given recent weakness.

Centrica's shares have declined more than 20% since the highs of around the 170p mark last September, with the stock having fallen by 8% in the 2024 so far.

That's despite beating company-provided consensus at both the earnings and net cash level at FY23 results last week, JPMorgan said.

"We believe that the weakness has been driven by positioning – many hedge fund investors were long the shares last summer – as well as lower earnings expectations from the buy-side as commodity prices have decreased," the bank said on Wednesday in a research note.

"In our view, the current share price implies that Centrica’s medium-term earnings will be 25% below guidance, and that the company will destroy over £1bn of value in future investments and growth capex. We continue to see Centrica as well positioned to deliver on its targets, without being reliant on elevated commodity prices, volatility or an accelerated energy transition scenario."

JPMorgan said the stock trades at a multiple of under three in terms of an enterprise value-to-EBITDA valuation, and its 190p target price for the shares implies 43% upside and was calculated assuming no value creation from the company’s growth investments.

Meanwhile, with Centrica's current £1bn share buyback programme due to end this summer, JPMorgan said it sees scope for a further £500m "which could be a catalyst that drives a rerating".

The stock was down 2.4% at 130.15p by 1129 GMT.