Analysts at the broker arm of high street bank HSBC have trimmed their price targets for British Gas-owner Centrica PLC (LON:CNA) and fellow energy supplier SSE PLC (LON:SSE) after news that a draft bill on energy price caps was announced at the Conservative Party Conference yesterday.
The bank’s analysts noted that energy regulator Ofgem had been unwilling to put a general price cap in place without the legislative mandate of Parliament, and had been in favour of extending a price cap but only to target vulnerable customer.
READ: Centrica shares fall as watchdog lowers energy bills for prepayment customers
For Centrica, the HSBC analysts said: “Our below-consensus estimates for 2018 already assume a £75mln earnings reduction so we are minded not to revisit this until further information is forthcoming.”
But, they added: “What we think will be difficult to deliver is any dividend increase for FY 2017 so we maintain a flat dividend.”
The analysts cut their target price for Centrica shares to 190p from 202p, reflecting a lower supply earnings multiple and a higher yield premium for increased political intervention, but maintained a ‘hold’ rating on the stock.
SSE remains a ‘buy’
For SSE, the HSBC analysts assume the same earnings reduction as for Centrica, and have trimmed its target price to 1,530p, from 1,590p.
But they said this still implies upside potential of around 12%, and repeated a ‘buy’ rating on SSE shares, pointing out that “SSE has other businesses that underpin its dividend growth strategy and mitigate political risk.”
After falls yesterday following the price cap announcement, both stocks rallied this morning, with SSE shares up nearly 2%, or 27p at 1,394p, and Centrica ahead 1.2%, or 2.2p at 181.5p.