Berenberg cuts Centrica to 'hold' ahead of 'another challenging year'

Analysts at Berenberg downgraded their recommendation on British energy and services firm Centrica to 'hold' on Monday.

2019 had been expected to be the year in which the uncertainties around the group would start to subside. Unfortunately, Berenberg said, it no longer appeared that that would be the case, as operational issues in Centrica's nuclear and upstream gas units meant earnings remained under pressure.

The German investment bank noted a dividend cut did not appear to be the inevitability that Centrica's roughly 9% yield might suggest.

"The group's dividend-dictating debt and cash flow targets are achievable and management seems determined to avoid one," said Berenberg.

Yet with 2019 shaping up to be "another challenging year", Berenberg thought it unlikely that Centrica's valuation would be ready to shake these concerns but added: "We do see value here, provided further mishaps can be avoided."

"However, the margins for error have narrowed, risks have increased and the path to an earnings recovery beyond 2019 is far from straightforward."

In addition to stripping Centrica of its 'buy' rating, Berenberg also lowered its target price on the FTSE 100 resident from 155p to 140p.