UBS has lowered its rating and price target on Centrica (LON:CNA), arguing that while the British Gas owner looks set to reach the low end of its cashflow targets, if anything else goes wrong, the dividend is clearly at risk, Proactive Investors reports. The comments came after the FTSE 100 group recently reiterated its targets for the full year, while cautioning that it expects a £70-million impact next year following industry regulator Ofgem’s energy price caps.
Centrica’s share price has been steady in London in today’s session, having gained 0.51 percent to 137.25p as of 13:37 GMT. The stock is outperforming the broader UK market, with the benchmark FTSE 100 index currently standing 1.16 percent lower at 6,941.46 points. The group’s shares have lost nearly seven percent of their value over the past year, as compared with about a five-percent dip in the Footsie.
UBS trims stance on British Gas owner
UBS lowered its rating on Centrica from ‘buy’ to ‘neutral’ today and its price target from 165p to 135p, following the group’s latest trading update, which, the analysts say, showed conditions are ‘tougher than we thought’. Proactive Investors quoted the analysts as saying large customer losses had continued at British Gas, production volumes are lower in oil and gas and commodity prices have been falling.
Analysts flag dividend risk for Centrica
“All this puts pressure on the strategy, and we no longer see a skew of risks to the upside,” the broker pointed out. “Overall, we think management can (just …) reach the low end of cashflow targets, but if anything else goes wrong the dividend (already a payout ratio of >100%) is clearly at risk.”
UBS reckons that if commodity prices recover and the US surprises positively, its fair value price could climb back to 165p.