Centrica downgraded to “neutral” by J.P. Morgan on limited upside

Investing.com -- J.P. Morgan has downgraded Centrica (OTC:CPYYY) in a note dated Monday to “neutral” from “overweight,”citing limited valuation upside following significant share price gains and earnings normalization. 

Shares of the British energy and services company were down 2.1% at 04:30 ET (08:30 GMT).

The brokerage noted that Centrica’s stock has outperformed the European utilities sector by about 290% since the third quarter of 2020. 

This performance, it stated, reflected restructuring benefits and a strong balance sheet that have now largely played out.

The updated 12-month price target was lowered from 170p to 167p, representing a modest 2% potential upside from the current share price of 164p as of June 27, 2025. 

J.P. Morgan’s revised earnings per share forecasts for 2025 and 2026 are now 11.76p and 14.39p, respectively, down from previous estimates of 12.42p and 14.56p, and 11% and 5% below Bloomberg consensus. 

The downgrade also reflects the normalization of commodity prices and reduced market volatility.

Financial guidance was cut across key metrics. Adjusted EBITDA for 2025 has been revised down 12.9% to £1.33 billion, and for 2026 to £1.41 billion. 

Adjusted EBIT for 2025 is now forecast at £839 million, an 8.5% drop from the prior estimate of £917 million. 

Net income for 2025 is revised to £569 million, down from £597 million, with adjusted EPS falling by 5.3% to 11.76p. 

Free cash flow to the firm is projected to be £268 million in deficit for 2025, a decrease from £113 million in 2024.

J.P. Morgan expects interim results on July 24 to reflect ongoing challenges in energy supply and trading segments. 

The brokerage forecasts £482 million in EBIT and £323 million in net earnings for the first half of 2025, representing year-over-year declines of 53% and 52%, respectively. 

Energy Markets and Trading are likely to remain under pressure due to geopolitical uncertainty and weaker Q2 power prices. 

The British Gas Energy segment is also affected by warmer weather, impacting volumes and margins.

Segmental revisions include downgrades to Centrica Business Solutions EBIT in 2025 and 2026 due to higher projected losses. 

Spirit Energy’s contribution is reduced following the announced sale of a 46.25% stake in the Cygnus gas field, expected to close by September. 

This deal includes £80 million in headline consideration and £68 million in decommissioning liabilities, reducing Centrica’s future cash flow from reserves.