Centrica PLC (LON:CNA) shares shook side news today that regulator Ofgem found its British Gas business must pay £2.65mln to refund customers who were overcharged for switching energy suppliers, getting a boost from an upgrade in rating by Citigroup.
In a note on the UK utilities, the US bank raised its stance on both Centrica and its blue-chip peer United Utilities PLC (LON:UU.) to ‘buy’ from ‘neutral’, highlighting valuation calls in both stocks - two of its three sector ‘Top Picks’.
Citigroup’s analysts said: “After several years of exuberant pricing of UK utilities, the table has turned in the face of political, regulatory and macro risks. While we expect a turbulent ride in the months ahead given the uncertainties of Brexit and questions over the stability of the current UK government, we cannot ignore the fact that we are starting to see fundamental value.”
For Centrica, reiterating a 160p price target, the analysts said: “Imminent clarity on the price cap methodology should provide earnings visibility and recent commodity price rally should underpin the 12p/share dividend.”
In late morning trading, Centrica shares were 0.7% higher at 142.95p.
Meanwhile for United Utilities, they noted that fears discounted by the shares are overdone, which leaves the stock with limited downside risk even in a nationalisation scenario, and repeated an 811p price target. United Utilities shares were up 1.5% at 729p.
Completing its sector top picks, the Citigroup analysts repeated a ‘buy’ rating and 961p price target on National Grid PLC (LON:NG.), saying UK risks are now firmly in the shares and they believe “exposure to improving US business should also provide hedge in case of further political turbulence.”
However, National Grid shares were 0.4% lower at 813.40p.