RBC cuts Centrica price target but reiterates 'outperform'

RBC Capital Markets cut its target price on Centrica to 260p from 280p, but reiterated its ‘outperform’ recommendation.

“We remain supporters of Centrica’s strategy, but it is unsurprising that longer-term positives are currently being outweighed by weak oil & gas prices,” said the bank.

Following the company’s recent trading statement, RBC downgraded its earnings per share forecasts by 9-13% over 2015-18, but said cash flow generation remains attractive and it forecasts free cash flow yields of 8-10% for 2015-18.

RBC said Centrica’s business model puts customers at the centre of the company, continues to downplay upstream assets, and focuses on growth from Connected Homes and Distributed Energy.

It said this new strategy aligns Centrica with the transformation it sees happening in the European utility landscape.

At the moment, these positives are being outweighed by earnings pressure from lower oil & gas prices.

“However, at full year results in February, we expect CNA will major on achievements to date, and clear targets for the new strategy. This may be a turning point for sentiment.”

RBC added that any investor concerns regarding the dividend are fundamentally misplaced and fail to recognise the 2x cash coverage.

At 1300 GMT, Centrica shares were down 0.2% to 209.70p.