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British Gas parent Centrica downgraded to ‘neutral’ by Credit Suisse amid “tight” dividend outlook

In a note, the bank cut its EPS forecast for the FTSE 100 firm by 9% for 2018 to reflect a weaker UK home market and lower hydrocarbon production volumes
Gas cooker
An 8% price rise expected in February was deemed to be "a negative for the stock”

Centrica PLC (LON:CNA) has been downgraded to ‘neutral’ from ‘outperform’ by analysts at Credit Suisse, amid what they saw as a “tight” outlook for the firm’s dividend.

In a note, the bank cut its earnings per share (EPS) forecast for the FTSE 100 British Gas owner by 9% for 2018 to reflect a weaker UK home market and lower hydrocarbon production volumes.

READ: Centrica shares under pressure after Jefferies cuts rating and says dividend at risk

Analysts added that an 8% price rise expected in early February would “on balance be a negative for the stock” while the sale of Centrica’s 20% stake in British Energy, run by French firm EDF, was “unlikely” in 2019 due to a standstill in the capacity market and uncertainty on the tax on carbon dioxide emissions, which usually drives nuclear profitability.

These factors, as well as a pension deficit, left the company’s dividend “sustainable, but looking tight” the bank said, adding that any more adverse impacts to the EPS could put it at risk.

Analysts also cut their target price to 155p from 180p to reflect the lower value for the British Energy stake.

It isn’t the first time this month a broker has slapped Centrica with a downgrade on dividend worries, with Jefferies cutting its rating to ‘hold’ from ‘buy’ earlier in January, saying the 12p dividend payment was “hanging by a thread” and predicted weak full-year results for 2018.

In late-morning trading Wednesday, Centrica shares were down 1.7% at 131.8p.

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