Centrica 19% TSR at 13x FY27E earnings with an underlevered balance sheet - we stay OW

Research evidence excerpt

Centrica 19% TSR at 13x FY27E earnings with an underlevered balance sheet - we stay OW

ervative basis, with the risk clearly skewed (44-20) 7742-4181

mukund.verma@jpmorgan.com

to the upside if Centrica’s traders see opportunities in the market later this year J.P. Morgan Securities plc

and/or next year. Furthermore, we see medium term guidance of £300-400m

EBITDA for this segment as credible by the end of the decade, as production Specialist Sales contact details:

and commercial deliveries start from new LNG projects. Ian Mitchell - Specialist Sales -

• If UK Retail bad debts are your concern, Centrica is a winner not a loser. European(44-20) 7134-1356Energy

While we understand the market’s concern around rising bad debts in ian.e.mitchell@jpmorgan.com

Centrica’s energy retail business, we note that this is being seen throughout the

Key Changes (FYE Dec) sector. In our view, Centrica’s scale and balance sheet mean that it is well

Prev Cur Δ

positioned to benefit if the government/regulator do not take action. In our Adj. EPS - 26E (p) 11.06 11.30 2.1%

view, a bad debt crisis for energy suppliers in the UK would drive another wave Adj. EPS - 27E (p) 12.80 12.23 -4.5%

of sector consolidation last seen in 2021/2022, as challenger suppliers with

undercapitalised balance sheets and/or lower margins could face insolvency, Style Exposure

which we see as ultimately benefiting large, well capitalised suppliers

including British Gas / Centrica. In the interim, we expect the regulator to pass

through higher bad debt costs to customers through the price cap.

• What’s in the price? To get to the current share price we would have to value

all of Centrica’s Retail (including Services) at 5x FY27 EBITDA, assume no