The expectation that British Gas owner Centrica PLC (LON:CNA) will maintain its dividend at 12p per share is pretty much the only reason behind a new broker upgrade.
RBC Capital has moved its rating to ‘outperform’ from ‘sector perform’ and lifted its target price to 175p from 150p on Monday, nevertheless, the accompanying note from analyst John Musk didn’t exactly shower praise on the company.
READ: Centrica jumps as £500mln cost initiatives, held dividend counters sharp drop in profits
“We are far from convinced that CNA will be able to deliver any bottom line growth over the next few years, and it remains beset by political and competitive pressures,” the analyst said.
Moreover, Musk reckons Centrica’s cashflow is “hovering” around the bottom end of the targeted range, between £2.1bn and £2.3bn, for the 2018-20 period. It is the group’s strong balance that’s propping the stock up.
Musk added: “With a strong balance sheet, the prospect of additional disposals and improving credit metrics we believe, on balance, that the 12.0p/sh dividend is sustainable.”
“We recognise that the jury remains out on the current strategy of the CNA management team, and the business remains subject to intense competitive pressures and political risks.
“Our upgrade is very much a valuation call.”