By Nicholas Earl
British Gas owner Centrica begins trading this week having suffered a sharp fall in its share price, with analysts calling on investors to cash in profits and exit their stakes in the energy giant.
The FTSE 100 firm endured an 8.1 per cent drop last week, slipping from 168.1p per share on Monday to 154.5p per share at close of play in Friday.
This follows a raft of investment analysts turning against the stock, with Liberum tipping clients to sell shares in the company, while both Bank of America and Morgan Stanley have downgraded their recommendations from “overweight” to “equal weight” – encouraging profit taking.
Investment analysts believe Centrica is now approaching fair value following bumper earnings this year, which powered shares 116 per cent over the past 12 months.
The company posted robust full-year earnings of £2.1bn in July, chiefly fuelled by British Gas’s profit bonanza – after Ofgem enabled firms to claw back funds to compensate costs from the domestic energy crisis.
Centrica has even brought back dividends for shareholders, set at 1.33p per share.
This has helped its share price growth surpass both industry rivals and the wider FTSE 350 by 110 per cent – according to Bank of America’s analysis published by Sharecast last week.
However the investment group was now encouraging investors to shift to rival energy firms including SSE and Engie.
“We see the shares now approaching fair value and see better risk-reward opportunities elsewhere in the sector,” Bank of America said.
“On balance, we believe Centrica’s current valuation reflects an overly optimistic view of the company’s long-term cash return and investment plans, as market normalisation leads to a declining earnings per share profile,” Liberum added in a note shared with Proactive Investors.
Centrica is hoping to lure investors with its green spending plans, and is currently planning £600-800m per year in renewable energy generation until 2028.
Following the results, chief executive Chris O’Shea said. “The new green investment strategy we’ve announced will see us invest several billion pounds in the energy transition, creating thousands of new well-paid jobs. Our robust balance sheet has allowed us to invest heavily in the UK and Ireland’s energy security and will make sure that our customers have cleaner energy at the right price.”
