Centrica Is ‘A Strong Cash Generation Story’

Goldman Sachs analysts reaffirmed their positive stance on Centrica (LON: CNA) this week, citing strong earnings momentum, attractive valuation, and significant shareholder returns potential.

The UK energy company recently announced that four of Britain's nuclear plants, in which Centrica holds a 20% stake, will extend their operational timelines.

Heysham 1 and Hartlepool will remain active until March 2027, a year longer than previously planned, while Heysham 2 and Torness will now operate until March 2030, adding an estimated 9 TWh to Centrica's electricity generation between 2026 and 2030.

The decision aligns with government efforts to decarbonise the UK power grid by 2030, Goldman Sachs said, citing a government-commissioned report.

The bank views this development as a positive addition to Centrica's investment story.

“We remain positive on Centrica, highlighting its positive earnings momentum and a strong shareholder returns story,” the investment bank stated, noting that the company trades at a significant discount, with a 2024E price-to-earnings ratio of 6.7x compared to the sector median of 12.3x.

The bank praised Centrica's strategic transition towards green-focused investments, calling it “a strong cash generation story.”

Goldman forecasts cumulative cash generation exceeding 100% of Centrica's current market capitalisation by FY2028, providing the company with ample resources to invest and enhance shareholder value.

The bank reiterated its Buy rating on Centrica, maintaining a 12-month price target to 176p on the stock, representing a 35% upside.

However, they note that risks include potential declines in UK energy supply margins, weaker commodity prices, and higher pension deficits.