Citi sees plenty of reasons to stay positive on Centrica PLC (LSE:CNA), even though the company faced some headwinds in the first half of the year.
Yes, profits at Centrica Energy were softer and a mild winter weighed on the residential business.
But here’s the bright spot: after adding its stake in the Sizewell C nuclear project, Centrica is becoming a much steadier operator.
Citi’s analysts think this shift, from more volatile, unpredictable profits to stable, regulated cash flows, could do two big things for the shares. First, it should boost Centrica’s earnings per share.
Second, it could mean the market values those future profits more highly, because predictable cash is always attractive in the eyes of investors.
Including Sizewell C, Citi reckons Centrica still has more than £2 billion in cash available for further investments or share buybacks. If credit rating agencies become more relaxed about Centrica’s borrowing, that figure could rise even higher.
There are also a few things to watch for in the months ahead: potential government updates on the future of the Rough gas storage facility, news on the pace of smart meter installations, and maybe even a deal or two to accelerate growth.
Citi also flags the possibility of Centrica extending its current share buyback programme later this year.
While Centrica’s strong share price run means there may not be quite as much upside as before, Citi still thinks the stock looks attractive in a market where good value is increasingly hard to find. In short, it’s a 'buy'.