Centrica PLC (LON:CNA) has been double upgraded to ‘overweight’ from ‘underweight’ by analysts at Barclays, who made the British Gas owner their top pick in the utilities sector.
In a note on Tuesday, the bank, which also cut its target price to 50p from 84p, said while they predicted the FTSE 100 firm is facing a “very challenging 2020”, the stock represented “an attractive opportunity for investors” and that the company “could emerge relatively stronger”.
READ: British Gas owner Centrica makes interim chief executive permanent boss
Barclays said negative margins in both residential and business over the year will be bad for Centrica but “may be even more difficult for other suppliers” and could reduce competition in the medium term and as a result cause a decline in switching rates, benefitting the firm.
The bank added that they believed energy regulator Ofgem and the UK government will be “supportive on liquidity and may potentially allow higher bad debt recovery” in price-cap tariffs.
Meanwhile, Barclays said Centrica had “ample liquidity” and with no dividend expected in 2020 alongside cost-cutting measures it was “of limited concern” going forward.
The bank also said that while the company had a “weak balance sheet”, they believed a successful capital raise “may see share price appreciation, as concerns over Centrica’s future would be materially reduced”.
Centrica shares were 2.3% lower at 34.8p in late-morning trading.