Centrica PLC's (LSE:CNA) first-half earnings may have underwhelmed, but investors are being asked to look beyond the short-term noise.
Despite a softer outlook for 2025, UBS has reaffirmed its 'buy' rating and nudged up its price target from 175p to 180p, suggesting more than 13% upside from the current share price of 159p.
The immediate drag for the British gas owner comes from a mix of mild spring weather and muted gas storage profits, which have led to a cut in full-year earnings forecasts.
Carry out your own analysis on CNA using Stockopedia. Access our offer here
But this is not a business judged solely on one quarter’s trading. Instead, the real story is playing out in Suffolk, where the future of Britain’s nuclear energy supply is about to be redrawn — and Centrica is at the centre of it.
The next big step: Sizewell C
UBS expects a final investment decision on the Sizewell C nuclear project in mid-June. For Centrica, it would be a transformational step. The company is preparing to commit between £1.5 billion and £2 billion in equity, along with its share of project debt, potentially up to £5.7 billion in total.
This is not a gamble. Centrica is likely to earn a regulated return during construction and for at least three years after completion.
If the economics hold, this would deliver a real return on equity above the 6.35% benchmark currently allowed for UK transmission networks. Even if costs overrun, UBS believes Centrica could still earn around 5% on its capital, an acceptable reward for a low-risk, long-duration asset.
This service sets the standard for stock analysis and screening. Find out why
The case for Sizewell C is not just financial. With four of the UK's current nuclear reactors set to close in 2027 and the remainder by 2030, there is a looming supply gap. Extending the life of these ageing assets is possible, but not guaranteed.
Sizewell offers long-term stability and low-carbon baseload power, a combination hard to replicate elsewhere.
Building a more stable earnings base
Beyond nuclear, UBS sees a growing role for regulated and quasi-regulated assets in Centrica’s portfolio.
By 2030, up to 37% of the company’s enterprise value could be tied to operations like smart metering, low-carbon generation and nuclear equity stakes, all of which benefit from predictable returns and inflation linkage.
These assets are valuable partly because they help offset the more volatile parts of the business, such as trading and commodity exposure.
At a time when investors are increasingly favouring stable cash flows, Centrica’s shift is timely. UBS estimates these activities could contribute around 4p per share in earnings by 2030, underpinned by nominal returns of 8%.
Valuation leaves room to rerate
Centrica currently trades on about 4.7 times its expected 2026 enterprise value to EBITDA, a discount UBS believes is too steep. The bank argues that a fairer multiple would be closer to 5.3, and potentially 7.0 over time if more capital is steered into regulated assets.
The 3.5% dividend yield is modest, but fully covered and paid in cash. There is also a £650 million buyback running through to the end of 2025, which could account for up to 10% of daily trading volume.
So, near-term, it has been a struggle for Centrica, but the portents are more positive.