Centrica Outlook is Positive but Analysts Hold Fair Value

Morningstar equity analysts are reaffirming their fair value estimate of £2.50 per share for British Gas parent company Centrica

Charles Fishman 19 December, 2016 | 11:09AM
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British Gas parent company Centrica (CNA) now expects 2016 adjusted earnings per share to be approximately 16.5p versus Morningstar analysts’ estimate of 15p and the consensus estimate of 15.4p. Although the favourable outlook is positive, it is driven by strong energy marketing and trading, a business with no moat and one where strong results can be temporary.

As a result, analysts are reaffirming our narrow moat and stable moat trend ratings and our £2.50 per share fair value estimate after Centrica increased its 2016 earnings guidance and confirmed operating cash flow will be well above management's initial guidance exceeding £2 billion. Centrica will report full-year actual results on February 23, 2017.

It was also positive to see that British Gas residential accounts, now part of UK Home, were flat since the first half of the year after declining 3% in the first half of 2016. Centrica did not comment on margins, but we suspect they could have been modestly squeezed due to leaving the variable energy tariff unchanged with recently higher wholesale natural gas prices.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Centrica PLC58.78 GBX-1.14Rating

About Author

Charles Fishman  Morningstar Equity Analyst, Equity and Credit Analysis