British Gas-owner Centrica PLC (LSE:CNA) has been slapped with a downgrade by US bank Jefferies, which questions where the next boost is coming from as gas prices normalise.
So far, Centrica has outperformed the sector by 50% in 2023 but uncertainty over earnings going forward might weigh on the shares, which look fairly priced at current levels.
The year coming to an end saw the following main drivers, suggests Jefferies: A good business update; £500 million of cost recovery; and a stand-out balance sheet and £1 billion buyback.
All of these might start to reverse from here, especially earnings momentum.
Further buybacks could support current valuation levels, but further visibility is needed on how Centrica can create value using its standout financial strength.
In particular, more clarity is needed on the capex programme for investors to get comfortable with returns.
Jefferies rates Centrica a 'hold' with an unchanged price target of 160p.