Analysts at HSBC are as bullish as perhaps is possible about British Gas owner Centrica PLC (LSE:CNA) which has taken on some 444,500 customers transferred from failing energy suppliers.
Whilst smaller utilities are collapsing, HSBC sees Centrica as a ‘hold’ and the bank today increases its price target to 56p, suggesting close to 4% upside to the prevailing share price.
British Gas takes on these customers under Ofgem’s supplier of Last Resort (SOLR) process, with the associated costs recoverable through an industry levy.
HSBC analyst Verity Mitchell, in a note, said that the additional customers are unlikely to be profitable to British Gas in the short term but will lower overall customer attrition rates for the utility firm.
Mitchell, meanwhile, cautions that ongoing gas market volatility continues to be a risk and that the severity of upcoming winter weather may also impact, and may require government intervention.
“Centrica has already purchased electricity and gas at lower prices for winter supply (unlike some of the small independent suppliers).
“However, if the weather in Northern Europe is exceptionally cold, this could drive even higher prices into 2022. In order for energy suppliers to recover these continuing wholesale costs, the government will have to raise the standard and variable price cap by a further cGBP550 per dual fuel customer in April.”
Mitchell added: “We maintain our ‘Hold’ rating on the stock as, despite the increase in the number of customers from failed suppliers, commodity price volatility remains a challenge.”