JPMorgan Cazenove put the boot into British gas-owner Centrica PLC (LON:CNA), kicking the energy provider even as it was laid low by fears of political interference on pricing after the upcoming UK general election.
The US broker has double-downgraded its rating for the FTSE 100-listed firm to ‘underweight’ from ‘overweight and chopped its target price to 180p from 265p.
In early morning trading, Centrica was the biggest blue chip faller, shedding 5.5%, or 11.2p to 192.0p, reversing after a bounce back yesterday which followed falls in the previous session amid worries that Theresa May’s Conservatives could impose an energy price cap if re-elected next month.
READ: Centrica and SSE shares tumble after Theresa May confirms proposed cap on energy bills
In a note to clients, JPMorgan’s analysts said that despite the strength of Centrica’s UK supply operations, two issues have recently arisen that “deeply concern us.”
Firstly, they noted significant downside emerging through price regulation of Centrica’s core ‘Standard Variable Tariff’ customer base.
The analysts said: “Our initial view of the damage to EPS was negative, but manageable at -10% to -20%.
“Yet our analysis of Ofgem’s regulated prepayment meter (PPM) tariffs – the main focus of this report – points to a deeper EPS erosion at up to -42%.
Secondly, they added that they see evidence of a price war emerging, with incumbent generation owner ENGIE entering the residential supply market with heavily discounted residential tariffs.
The analysts said: “Having lost customers in Q1 (at an annualised rate of 7.5%), CNA has already been forced to respond with heavily discounted offers via its Sainsbury’s brand.”
The JPMorgan downgrade comes on the heels of other recent broker moves on the energy giant, with Macquarie cutting its stance to ‘hold’ last month, while Credit Suisse moved down to ‘neutral’ in February