Centrica PLC (LSE:CNA) shares are undervalued, while the market “underappreciates” the energy company’s strong cash flow profile, JP Morgan brokers claim.
According to JP Morgan, Centrica will have around 40% of its current market capitalization in net cash by late 2024, equalling around £2.7bn based on Wednesday’s £6.7bn valuation.
This would be in spite of a £550mln share buyback planned for this year and £380mln in subsequent dividend payments.
“We continue to believe that the market underappreciates Centrica’s strong cash flow generation profile, even in a lower commodity environment,” the bank noted.
Looking ahead, JP Morgan anticipated the British Gas owner to update on capital allocation priorities in interim results on Thursday, 27 July, adding “management will continue to be disciplined with cash”.
JP Morgan gave Centrica a share price target of 140p, up almost 17% on Wednesday’s opening, alongside reiterating an ‘overweight’ rating.
Centrica shares were trading 1.3% lower on Wednesday morning, at 118p.