RBC ups price target on Centrica

In a note published on Monday, RBC said commodity prices were driving “meaningfully higher” earnings per share near-term for the owner of British Gas, with strong performances in particular its exploration and production and nuclear units.

It said: “We recognise these segments are not core to Centrica, as both are limited life and commodities are likely to moderate.

“However, cash generation cannot be ignored. Investable opportunities for Centrica at the moment, so we now model 10%-around £500m annual buybacks to show potential returns from investing surplus cashflows.

“Under this scenario, Centrica remains debt free but 2030 EPS progress to around 19p per share from 9p per share in a no buyback scenario.”

It concluded: “The strategic future for Centrica remains difficult to predict, and we expect more clarity at the half-year results in July. However, cashflow generation is exceptional mid-term, with free cashflow yields, post capex, of around 20-25%. If used for buy-backs, these cashflows can generate meaningfula EPS growth.”

RBC’s price target is now 125p, up from 90p. As at 1340 BST, shares in the firm were ahead 4% at 80.1p.