Centrica PLC's (LSE:CNA) long-term value could receive further support from a reported agreement to extend the life of the Sizewell B nuclear power station, according to Citi.
A Bloomberg report suggested that EDF and the owner of British Gas Centrare close to agreeing heads of terms with the UK government for a 20-year extension of the plant's operating life.
The report said a full contract could be signed later this year and would include a contract-for-difference power price of £70 per megawatt hour.
Centrica owns a 20% stake in Sizewell B through its interest in the UK's nuclear generation fleet. News flow in the past few years has focused on Sizewell C, where the FTSE 100 company earlier this year paused its share buyback programme to redirect capital towards the build-out of the new nuclear power station and the acquisition of a natural gas terminal.
Citi said the prospect of a life extension of the older Sizewell B had been widely anticipated, although the reported pricing details had not previously emerged.
The investment bank described the reported £70 per megawatt hour strike price as "attractive", even after taking into account earlier reports that the project could require around £800 million of capital expenditure. Centrica's share of that investment would be about £160 million.
Analyst Jenny Ping said her 218p target price for Centrica currently includes a 20-year life extension, but this valuation assumes a lower long-term power price of £65 per megawatt hour and only maintenance capital spending.
As a result, the analyst does not expect any confirmed agreement to result in a "meaningful" change to her valuation.
However, reiterating her 'buy' rating, she said the arrangement would reinforce the investment case by providing greater visibility over long-dated earnings and cash generatio.
