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Centrica Recovers from Difficult 2017

Tue, 21st May 2019

As we head into the new year, Centrica has managed to shrug off last year’s poor performance, and the FTSE 100 as a whole surged to new highs. In 2017, Centrica was the poorest performer out of the blue-chips, but last week the company led the UK’s leading index to a record high.

The energy company, which owns British Gas, gained 3.1 percent, up to 146.2p, thanks in part to Credit Suisse turning positive. Fears over the possibility that there may be some re-nationalisation mean that the worst-case scenario for price caps is already something that is priced into the shares, explained the broker.

Investors seem to fear that domestic supply margins could fall from 7 percent, down to just 1.5 percent, while a reduction to around 5 percent looks far more likely for the company.

With regard to nationalisation, Credit Suisse explains that it feels it is highly unlikely that a Labour government will bear the cost, given the current value of the asset base. To raise £147 billion would require issuing gilts to the equivalent of 8.5 percent of GDP, and this is unlikely to occur. Credit Suisse also says that it believes investors have already priced in potential dividend cuts by SSE and Centrica, and that they see a payout from United Utilities as being a relatively safe bet. The broker set a target of 170p for Centrica, which ended the week at 146.2p, a gain of 3.1 percent. Peers SSE and United Utilities also advanced.

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