Centrica PLC's (LSE:CNA) outlook remains attractive despite a weaker trading update last week, according to JP Morgan, which reiterated its “overweight” rating and highlighted upside potential from disciplined capital allocation.
In a note to clients, analyst Pavan Mahbubani said the investment case for the British Gas owner remains intact, even as 2025 earnings expectations come under pressure.
“We remain positive on Centrica despite last week’s trading update, which implied earnings downgrades for 2025,” he wrote.
“The combination of strong cash flow generation from existing businesses and the potential for value creation from development capex underpins a positive risk/reward.”
While the broker has revised its outlook for the trading and residential energy supply divisions to reflect a more cautious stance, it is increasingly constructive on other parts of the portfolio.
JP Morgan now includes value accretion from Centrica’s Meter Asset Programme and from new-build gas plant investments in Ireland. There is also scope for upside from potential developments in nuclear and gas storage.
“We could see positive news in the coming weeks on investments into new nuclear, as well as an agreement with the government on the future of Rough gas storage,” Mahbubani said.
Centrica has sought to reposition itself in recent years, placing greater emphasis on infrastructure and regulated assets, while scaling back exposure to commodity trading volatility. JP Morgan believes this strategy is beginning to bear fruit.
Crucially, the bank sees Centrica’s capital discipline as central to the investment case. “We continue to believe that management will maintain capital allocation discipline, which underpins our view that risk/reward is skewed to the upside,” the note added.
JP Morgan has trimmed its December 2026 price target from 185p to 170p, but this still implies 14% upside from current levels. the stock is currently changing hands for 148.65p, flat on the day.