Exane upgrades Centrica; says negatives now priced in

It noted the shares fell 20% in 2015 following a 20% drop the previous year.

The group is exposed to wholesale gas and oil prices and regulatory uncertainty in the UK retail energy market, the bank said.

It pointed out that the entire senior management team changed last year and Centrica’s new strategy is to focus on downstream, moving away from upstream, aiming deliver £750m of annual cost savings by 2020 as part of a target to grow cash flow by 3-5% per year from the 2015 base level.

The bank said there are still two main areas of uncertainty: how the outlook for oil/gas prices affects the upstream valuation, and how the margin assumptions impact the UK downstream valuation in the face of political and regulatory uncertainty.

As far as the utilities sector more broadly is concerned, it said company-specific events, EU policy and management action will likely be the key determinants of multiples and therefore valuation this year.

At 1052 GMT, Centrica shares were up 1.5% to 209.30p.