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Berenberg times price target on Centrica, retains rating

By Abigail Townsend

Date: Friday 03 Apr 2020

Berenberg times price target on Centrica, retains rating

(Sharecast News) - Berenberg has trimmed its price target and maintained its 'hold' recommendation on Centrica, after the British Gas owner pulled its dividend.
In an unscheduled trading update on Thursday, Centrica said it was cancelling the final 2019 payout and suspending asset sales in response to the Covid-19 pandemic. It also warned it was braced for an increase in bad debt and that it had already seen a "significant" fall in demand from corporate customers.

In a note on Friday, Berenberg said: "Centrica's statement confirmed our view that in addition to commodity price pressure on upstream profits, Covid-19 is expected to affect its business energy-supply divisions, and its services and solutions activities for both homes and business.

"As well as lower revenues, the group expects an increase in working capital outflows and customer bad debts or deferred payments."

The bank, which cut its earnings estimate for Centrica, along with several other utilities, last month, added: "We now assume a zero dividend in 2020, with a gradual reintroduction of payments from 2021, building to a more conservative 40% long-run payout ratio."

But it also pointed to measures introduced by Centrica to minimise the economic fallout from the pandemic, including reducing 2020 cash expenditure by around ?400m above its existing cost-cutting plan. It said leverage was "not currently an issue", as Centrica had ?2.7bn of undrawn credit facilities at the end of March and was confirmed only last month by both Moody's and Standard & Poor's as having stable credit ratings of Baa2 and BBB respectively.

"The proximity of the latest rating reviews suggests that at least Centrica has some time to tackle the financial challenges presented by Covid-19," it added.

Berenberg has lowered Centrica's target price to 45p from 50p. As at 1400 BST, shares in the blue chip were off 2% at 33.34p.

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