Centrica’s profits upgrade yesterday put it on course for its highest-ever earnings, according to broker Credit Suisse, with the shares attractive even without the soaring gas price bonus.
The broker upped its price target for the British Gas owner to 135p, from 130p, and its forecast of EPS this year to 31.2p (from 24.2p).
Key now is how earnings normalise once gas prices settle back down and Credit Suisse see these at around 7-8p, while cash flow should be strong enough for another £200mln buyback in the second half of 2023.
Operationally, price caps mean suppliers such as British Gas are essentially de-risked from energy movements short-term, while the failure of small independent suppliers means its market share is now a healthy 25%.
Customers switching to more energy-efficient products should also see growing momentum over the next five years.
Credit Suisse notes that on its forecast for clean earnings (ie non-gas price inflated), the shares trade on a 10 times multiple, whereas it thinks it should be fifteen times.
“We forecast a 10% free cash flow yield, 3.6% dividend yield and recurring buyback of 2%,” added Credit Suisse, which has an 'outperform' rating.
Shares today were up 1.8% at 97p.