Shares in Centrica (LON:CNA) have jumped in London this morning as analysts at Jefferies hiked their rating on the British Gas owner. Proactive Investors reports that the broker reckons that industry regulator Ofgem is likely to adopt a ‘balanced approach’ when it brings in its new price cap on standard variable tariffs.
As of 10:21 BST, Centrica’s share price had added 2.07 percent to 147.60p, outperforming the broader UK market, with the benchmark FTSE 100 index having fallen into negative territory and currently standing 0.25 percent lower at 7,717.91 points. The group’s shares have lost more than 26 percent of their value over the past year, as compared with about a 2.8-percent gain in the Footsie.
Jefferies upbeat on British Gas owner
Jefferies lifted its rating on Centrica from ‘hold’ to ‘buy’ today, while also hiking its price target on the shares from 155p to 165p. While investors have feared how hard regulator Ofgem would hit energy suppliers, the broker’s analyst Ahmed Farman does not expect the cap to be ‘highly punitive’.
“Although the primary focus of the cap is the protection of SVT customers, [Ofgem’s recent consultation paper] also references detailed consideration of financeability needs and costs of energy suppliers,” the analyst pointed out, as quoted by Proactive Investors, adding that this suggested “a more balanced approach, with low likelihood of a highly punitive outcome”.
Stronger balance sheet
Farman has further pointed to the rise in commodity prices over the past few months as another reason for his upgrade, along with the sale of a 20-percent stake in EDF Energy and the divestment of Spirit Energy, which, the analyst argues, “would strengthen Centrica’s balance sheet and crystallise value for shareholders”.
The upbeat comments come after JPMorgan lifted its rating on the British Gas owner last week, noting that the group’s dividend was safe for now.