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Berenberg upgrades British Gas owner Centrica to 'buy'
(Sharecast News) - Berenberg upgraded British Gas owner Centrica on Monday to 'buy' from 'hold' and lifted the price target to 155p from 130p. The bank said Centrica's strong balance sheet, with nearly £3bn of net cash, continues to afford it optionality, which leads it to a more constructive view of the investment case.
Berenberg said the upgrade was supported by its expectation that the group will use £1bn of its cash to extend its share buyback programme.
"The buyback helps to ease the effect of a commodity-driven normalisation of profits through the coming years, and leads us to increase our earnings per share forecasts by 13% on average for 2024E-2026E, expanding Centrica's valuation discount to the sector (7.3x/10.5x price-to-earnings and 3.4%/3.9% yield for 2024E/25E)," it said.
"While we expect the discount to remain, we expect it to narrow, which is a view that is also supported by our discounted cash flow-based sum-of-the-parts and DDM models."
At 0850 BST, the shares were up 2.8% at 138.73p.
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