Citi's Upgrade of Centrica#
Citi Research has recently upgraded Centrica Plc from a 'neutral' rating to a 'buy' rating. This change comes alongside an increase in the 12-month price target for Centrica shares, now set at £2.18, up from £2. The upgrade is largely influenced by the ongoing conflict in the Middle East and rising gas prices, which are expected to enhance UK government support for Centrica’s energy assets.
Government Support for Energy Security#
Analyst Jenny Ping highlighted that the current political climate makes government backing for Centrica’s Rough gas storage facility more likely. UK Chancellor Rachel Reeves emphasized the importance of energy security, stating a commitment to invest in clean, domestic energy sources, including nuclear power. Citi anticipates that the government will provide initial support of £100 million to keep the Rough facility operational, with potential for an additional £1 billion investment to extend its lifespan.
Financial Performance and Projections#
Centrica's recent financial results for FY2025 showed a decline in revenue to £22.37 billion from £24.64 billion in 2024. The company reported a net loss of £72 million, a significant drop from a profit of £1.374 billion the previous year. Despite these challenges, Citi's forecasts suggest a recovery in core earnings per share (EPS), projecting it to reach 13.3 pence in FY2026 and gradually increase in subsequent years.
Risks and Valuation#
Citi's valuation considers various factors, including long-term retail margins and energy prices. The firm outlines potential risks, such as a significant drop in commodity prices, unfavorable regulatory decisions regarding the Rough facility, and ineffective capital allocation. The bull case for Centrica’s share price is set at £2.40, while the bear case stands at £1.80, reflecting varying market conditions. Overall, the upgrade signals a cautious optimism about Centrica's future in the evolving energy landscape.