UBS downgrades Centrica on 'more balanced' risk/reward scenario
Analysts at UBS downgraded Centrica to 'neutral' on Wednesday, highlighting a "more balanced" risk/reward scenario in the wake of the FTSE 100 constituent's most recent trading update.
Centrica
133.30p
16:40 23/04/24
FTSE 100
8,044.81
16:49 23/04/24
FTSE 350
4,424.29
16:59 23/04/24
FTSE All-Share
4,378.75
17:14 23/04/24
Gas, Water & Multiutilities
6,033.38
16:59 23/04/24
The Swiss broker said that the energy supplier's trading update showed that conditions were tougher than it had initially thought, with the loss of large customers at British Gas continuing alongside sliding production volumes in the firm's asset businesses and unstable commodity prices.
"All this puts pressure on the strategy, and we no longer see a skew of risks to the upside," said UBS as it dropped its target price on Centrica to 135p from its previous 165p.
UBS said it was particularly concerned about the fact that Centrica had lost 2m accounts in as many years, "intense" competitive pressures in the US market, outages in nuclear and some yet-to-be-identified problems upstream.
"Overall, we think management can (just...) reach the low end of cash flow targets, but if anything else goes wrong the dividend is clearly at risk."
Indeed, for 2020/21 UBS had penciled-in a reduction of its cash dividend from 12.0p to 8.0p.
UBS also assumed the scrip take-up would be neutralised.
The broker did note that there was upside to be had should commodity prices improve and if the US surprised "positively" but noted that, as it stands, the new rating felt like "the upside case, not the base case".