RBC Capital Markets hikes target price on Centrica

Analysts at RBC Capital Markets raised their target price on energy services firm Centrica from 90.0p to 125.0p on Monday, citing "exceptional" mid-term cashflow generation and free cash flow yields of roughly 20-25%.

RBC Capital said higher commodities had resulted in "meaningfully higher" near-term earnings per share at Centrica, principally driven by E&P and nuclear.

Although RBC recognised that neither of the aforementioned segments were core to Centrica, as both were limited life and commodities were likely to moderate, it noted that cash generation cannot be ignored.

The Canadian bank said investable opportunities for Centrica were "hard to identify" at the moment, so it has now modelled four 10%, or roughly £500.0m, in annual buy-backs to show potential returns from investing surplus cashflows.

Under this scenario, Centrica still remains debt-free, highlighted the analysts, but 2030 EPS would progresses to approximately 19.0p per share from roughly 9.0p in a no-buy-back scenario.

"The strategic future for CNA remains difficult to predict, and we expect more clarity at H1 results in July. However, cash flow generation is exceptional mid-term with FCF yields, post capex, of ~20-25%. If used for buy-backs, these cashflows can generate meaningful EPS growth," said the analysts, who also reiterated their 'outperform' rating on the stock.

Reporting by Iain Gilbert at Sharecast.com