JPMorgan says Centrica remains 'top pick', lifts price target

JPMorgan Cazenove said on Wednesday that British Gas owner Centrica remains a "top pick" as it lifted its price target to 140p from 130p and maintained its ‘overweight’ rating.

"We continue to believe that Centrica shares are undervalued, trading at circa 7x/9x 23/’24 JPMe earnings per share," it said.

"On our estimates, Centrica will have more than 40% of its current market cap in net cash by the end of 2024 even after having bought back £550m worth of shares by the end of 2023 and paying £380m in dividends between today and the end of 2024."

JPM said it expects an update from the company on capital allocation priorities at the interim results in July, and believes that management will continue to be disciplined with cash.

"Last week’s announcement from regulator Ofgem on a revised EBIT allowance…means we increase our EPS estimates and valuation, with our 140p December 2024 price target implying 16% upside," it said.

The bank said it continues to believe that the market underappreciates Centrica’s strong cash flow generation profile, even in a lower commodity environment.