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Centrica a “value wildcard”, says Jefferies as it ups to buy

The US broker said the shares were trading at a 50% discount to the sector after a torrid 2019 marred by profit warnings and a savage dividend cut

Centrica PLC - Centrica PLC “value wildcard”, says Jefferies as it ups to buy

British Gas owner Centrica PLC (LON:CNA) is a “value wildcard” with a steep discount to the rest of the sector, according to analysts at Jefferies, who on Thursday upgraded the stock to ‘buy’ from ‘hold’.

The US broker, which has the FTSE 100 firm pegged with a 90p target price, said the shares were currently trading at around a 50% discount to the sector after a torrid 2019 that has seen the firm issue a multitude of profit warnings, swing to a net loss in its first half, lose its chief executive Iain Conn and slash its generous full-year dividend by more than half to 5p.

READ: Centrica chief executive to depart after slump into losses and dividend cut

Unsurprisingly, this has resulted in a sharp plunge in the share price, which has tumbled around 45% since the start of the year.

However, analysts said a new strategy presented in July, which will involve the disposal of the group’s Spirit Energy business and its 20% stake in UK nuclear by 2020 alongside spending cuts, would leave its balance sheet “in better shape”, support 3% EBIT margins in Centrica’s UK Home energy business, which includes British Gas and Hive Energy smart monitoring, and leave its dividend “well-underpinned”.

As a result, the new strategy, alongside the discounted share price, left Centrica’s stock with an “attractive” risk-reward profile, Jefferies said, adding that even if it reached their 90p target the group would still trade at a 30% discount to the sector with a dividend yield of 5.6% as opposed to 5% among its peers.

The shares began to heat up in early afternoon on Thursday, rising 2.7% to 74.8p.

Quick facts: Centrica PLC

Price: 68.8 GBX

LSE:CNA
Market: LSE
Market Cap: £4 billion
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