RBC has raised its price target on Centrica PLC (LSE:CNA) shares from 175p to 200p and reiterated its 'outperform' rating, citing the group’s move to take a 15% stake in the Sizewell C nuclear project as a key catalyst for long-term value.
The broker says the Sizewell C deal offers “a highly attractive agreement” for Centrica, with strong, low-risk returns and limited execution risk.
RBC analysts describe the economics of the Sizewell C investment as better than expected, highlighting a real return on equity of 10.8% and the prospect of more than 12% internal rates of return if the project remains on budget.
Cost protections are in place to cap Centrica’s gross investment at £1.3bn, with returns only modestly affected even if overall project costs rise.
The broker estimates Sizewell C adds about 23p per share to its valuation of Centrica.
Looking more broadly, Centrica reported a net cash position of £2.5 billion at its interim results, which RBC says provides significant flexibility for further investments or shareholder returns.
The broker also notes Centrica’s ongoing £2bn buyback and strong optionality for future capex, while the future of the Rough gas storage asset remains a focus as government consultations continue.
RBC’s revised numbers show little change to short-term profit forecasts, but Sizewell C is expected to provide a “material pick-up” to earnings per share over time as the project progresses.
The new 200p target implies roughly 25% upside from current levels, with RBC describing Centrica’s entry point as “compelling” and highlighting further potential upside if additional uncommitted capital is deployed into new growth areas.
The shares were up 1.8% at 163.5p.