Centrica shares jump 2% as Jefferies sees overlooked business growth

 Centrica shares jumped more than 2% on Tuesday after Jefferies upgraded the British utility to "buy" from "hold" and raised its price target to 200 pence from 190 pence, saying the market is overlooking growth in its retail and infrastructure businesses, which account for about 85% of its expected 2027 EBITDA.

The 200 pence target is 31% above the prior close of 152.70 pence. Centrica has a market value of £7 billion.

Forecasts for 2027 earnings per share fell 11% to 13.0 pence from 14.5 pence between the company’s July 23 first-half results and the end of October, while the shares dropped 16%. 

Most of the cuts followed management’s lower 2027 outlook for its optimisation unit, mainly the Centrica Energy trading business, which management put at about £250 million of EBITDA versus about £320 million in the Bloomberg consensus, citing the Middle East crisis limiting LNG diversion strategies and lower realised pricing.

Jefferies said it expects group earnings per share to grow 13% a year over 2026-2030, driven by 17% annual growth in earnings from retail and infrastructure after interest costs.

It forecasts that portion rising to 14.7 pence in 2030 from 7.8 pence in 2026, and assumes broadly flat trading earnings.

Jefferies forecasts 2027 earnings per share of 13.2 pence, 5% above Visible Alpha consensus, and 2027 EBITDA of £1.53 billion, 8% above. It cut its 2026 EBITDA forecast to £1.39 billion from £1.46 billion.

At 150 pence, Centrica trades at 11.3 times expected 2027 earnings and 4.9 times enterprise value to EBITDA for 2027.

At the 200 pence target those would be 15.1 times and 6.4 times, versus about 17 times and about 10 times for European utility peers. 

Jefferies said the current valuation places too much weight on uncertainty within Centrica Energy and does not reflect the resilience and growth of retail and infrastructure earnings.

Jefferies called its forecasts for Centrica Energy conservative. It estimates an extra £100 million of operating profit there would add about 1.6 pence to earnings per share, or about 14% of its 2026 estimate.

BP said its gas marketing and trading result was "significantly higher" quarter on quarter.

Jefferies also sees about 23 pence a share of potential value from nuclear life extensions, a supported redevelopment of the Rough gas storage site, the Morecambe carbon storage project and a final investment decision on the Galway OCGT project, none of it in its base forecasts. Its scenarios range from 130 pence to 240 pence.

Retail bad debt remains a concern: Centrica reported a residential bad-debt charge above 4% of revenue at the first half, versus the current Ofgem allowance of 3.8%. Jefferies expects it to fall below that allowance from 2028.