Shares in Centrica PLC (LON:CNA) heated up on Monday as UBS upgraded the owner of British Gas to ‘buy’ from ‘neutral’ saying they saw the potential for “25% upside” in the stock.
The Swiss bank, which also hiked its target price for the FTSE 100 energy firm to 110p from 68p, said the shares were currently trading at a 45% discount to the UK's regulated names, the firm’s British Gas services business was “undervalued” and there were “significant corporate catalysts” for growth, particularly with the UK’s retail market improving.
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UBS added that the upcoming change of chief executive, due this year after incumbent Iain Conn said in July he would be retiring from the firm, was “a catalyst that could lead to changes in strategy”.
While the bank noted that there was “a risk of surprises” that could prove negative to Centrica’s shares, they saw these “reducing” as a result of the company’s planned disposal of its commodity business, the improving picture for UK retail and “reduced political risk”.
“Some risks will remain (weather; competitive pricing; market share; disposal valuation) but we think it is fair to expect lower overall volatility than in the past”, UBS said.
The assessment helped lift Centrica’s shares by 1.5% to 87.1p in mid-morning trading.