Citi downgrades Centrica to 'neutral', cites limited absolute upside

(Sharecast News) - Citi downgraded British Gas owner Centrica on Tuesday to 'neutral' from 'buy', citing "sound" fundamentals but limited absolute upside. "We continue to prefer Centrica on a relative basis given its balance sheet strength and growth optionality, especially in the context of a fully valued sector," it said.

"However with the stock now within touching distance to our unchanged 185p price target, with no immediate upside catalyst, some concerns gathering around UK politics and Centrica Energy for the FY, as well as our more cautious view of commodity outlook, we struggle to see much absolute upside and downgrade to neutral."

Citi noted that Centrica shares have delivered 34% absolute and 11% relative to the Stoxx Europe 600 utilities index year to date.

"We would consider any meaningful weakness in the shares as potential point of re-entry, as we remain confident on the company's long-term outlook given management's track record to deploy capital and optionality on growth investments (e.g. Rough, X-energy long-term) or further return of capital," it said.

However, Citi said potential earnings per share consensus downgrades for the full year could keep a cap on the shares in the near term.

At 1025 GMT, the shares were down 1.1% at 174.85p.