“Many uncertainties remain in the CNA [Centrica] investment case including pensions, ongoing industrial action, a potential E&P [exploration & production] disposal and no clear guidance from management on earnings or dividends,” the broker said in a research note.
“This sounds like a long list of reasons not to buy CNA shares; however, we see 2021 as a turnaround year and expect clarity to emerge in the coming months. Our revised EPS [earnings per share] forecasts sit towards the top of street estimates, and we reiterate our Outperform recommendation with an increased PT of 75p/sh, capturing an improved outlook for British Gas,” it added.
RBC’s previous price target was 55p.
The broker reckons that things are looking up for British Gas, with competition from smaller competitors dwindling while the former nationalised industry’s cost competitiveness is improving, although RBC concedes that “there is more to do on the latter”.
Although previously thought of as an income play, Centrica has not declared a dividend since 2019 and now “can be placed squarely in the value camp”, RBC asserts. Its revised price target implies a price/earnings ratio of less than 10, so a re-rating is a possibility.
Centrica shares currently trade at 55.86p, down 0.3% on the day.