Goldman downgrades Centrica after 'weak' FY results

Goldman Sachs downgraded Centrica shares to ‘neutral’ from ‘buy’ on Friday, cutting the price target to 132p from 158p following the company’s "weak" full-year results a day earlier.

It noted that since being added to the buy list in September 2018, the shares are down 17% versus the FTSE World Europe down 4%.

"Whilst Centrica announced increased cost-cutting efforts and stepped up non-core disposals, we see its FY results as a negative," said GS. "Centrica highlighted that 2019 adjusted operating cash flow (AOCF) is to be impacted by the UK default tariff cap, continued lower E&P and nuclear volumes, and cash tax phasing.

"Furthermore, Centrica stated around £100m of the £350m reduction in AOCF is also expected to impact 2019 adjusted earnings."

Goldman said that adjusting its numbers following the full-year release, it cuts its earnings per share estimates 13% on average over FY 2019-FY2021 and the FY 2020 dividend by 17% to reflect AOCF on its estimates being below Centrica’s threshold of £2.1-£2.3bn into FY 2020.

"In our view, FY 2019 is a trough year for the company, and we see EPS recovering from this level, but based on the near-term headwinds and potential risk to the dividend we downgrade."

At 0940 GMT, the shares were down 0.8% to 120.20p.