Shares in Centrica (LON:CNA) have fallen deep into the red in London in today’s session, as analysts at Jefferies lowered their stance on the British Gas owner, pointing to dividend risk. The move comes after it emerged last month that the company was to launch a legal challenge against the UK’s upcoming energy price cap, arguing it has not been calculated fairly.
As of 10:51 GMT, Centrica’s share price had given up 4.41 percent to 131.25p, underperforming the broader UK market, with the benchmark FTSE 100 index currently standing 0.36 percent lower at 6,812.84 points. The group’s shares have given up more than 10 percent of their value over the past year, as compared with a near 12-percent drop in the Footsie.
Jefferies lowers rating on Centrica
Jefferies lowered its rating on Centrica from ‘buy’ to ‘hold’ today, trimming its price target on the shares from 170p to 125p. Proactive Investors quoted the analysts as citing “material downside risk to 2019-20 earnings, borderline credit metrics and limited market-to-market benefits of higher commodity prices in the medium-term” as the reasons for the move.
The broker further reckons that it sees ‘a timely disposal’ of the FTSE 100 company’s 20-percent nuclear stake as “critical to protect its balance sheet against another potential hit”.
Analysts flag dividend concerns
Jefferies further lowered its 2018-20 earnings (EBIT) and earnings per share forecasts by eight percent and 15 percent, respectively, citing a more pessimistic outlook for UK retail, a fall in commodity prices, lower E&P output and 40-percent effective tax rate.
“With materially lower 2018-20 earnings forecasts, we expect Centrica's adjusted operating cash flow to dip below the company's £2.1-2.3bn guidance range in 2018-19, and be at the lower end of the range in 2020,” the broker said, as quoted by Proactive Investors, adding that with this it saw “borderline credit metrics for Centrica […] and 12p dividend per share hanging by a thread”.