Citigroup has cut its rating for Centrica PLC (LON:CNA) to ‘neutral’ from ‘buy’ and lowered its 12-month price target to 144p from 160p, the second broker downgrade suffered by the British Gas owner this week.
In a note to clients, analysts at the US bank said: “In our view, Centrica shares are already fully reflecting the challenging retail market and pricing in a probable dividend cut with its 9% dividend yield.”
“However,” they added, “unless Centrica is able to revitalised its current strategy by delivering growth in some of its new business lines or to curb the level of churn in retail or to improve the commodity output, we see little reason for investors to own the shares.”
In mid-morning trading, Centrica shares were 1.8% lower at 136.55p.
On Wednesday, RBC Capital double downgraded its rating for Centrica to ‘underperform’ from ‘outperform’ with a reduced target price of 130p, down from 185p.
The Canadian investment bank said it believes the “harsher commodity environment” and rising competitive and regulatory pressures will hit operating cash flow, which in turn will mean Centrica’s current 12p dividend is unsustainable.
Its analysts said: “We assume an 8p/sh dividend from 2019, with a 75% payout ratio thereafter, whilst also removing the dilutive scrip dividend option.”