RBC Capital reiterates 'outperform' rating on Centrica

Centrica’s ‘outperform’ rating was left unchanged by RBC Capital Markets on Thursday but the British Gas owner’s target price was cut to 250p from 280p.

RBC said it advocates Centrica’s strategy, announced last July, to put customers at the centre of growth ambitions and to scale back exploration and production (E&P) exposure.

The broker said a 33% increase in oil prices over the past three months will drive improved economics in E&P and generation for Centrica, pushing earnings before interest and tax 10-20% higher than previously.

“Now that commodity prices have started to bounce and Centrica’s new growth strategy is taking shape with recent acquisitions, we reiterate our ‘outperform’ recommendation with a new price target of 250p pre share (down from 280), reflecting the recent equity raise.”

The company’s raised £700m in May, which was a surprise that was poorly received by the market, RBC noted.

“While we understand strategic growth acquisitions may be difficult to pass up, we believe credit metrics were really driving the equity raise. And it worked.”

RBC added that Centrica "screens well" against integrated peers, trading on an estimated 2017 price to earnings ratio of 11.5x, a 5-10% discount. The group also has a dividend yield of 5.7% in 2016, which RBC said it believes will grow in line with operating cash flows at 3-5% out to 2020.

Shares rose 1.02% to 218.60p at 1024 BST.