Broker snap: Centrica to 'outperform', says Credit Suisse

22nd Jul 2011 11:32

Credit Suisse recommends to buy UK energy giant Centrica at current levels, saying that its full-year earnings estimates are ahead of consensus, reflecting its bullish view on supply margins within British Gas Residential Energy (BGRE). "Regardless of whether Centrica's growth projects (nuclear and gas storage) progress past its Investment Committee, the business still has earnings upside," the Swiss broker said.Nevertheless, Credit Suisse thinks that first half group earnings are expected to be lower than the first half of 2010: "The interest charge is expected to fall way below £200m, as bond buybacks from prior years filter through, and [the first half of 2010] saw exceptional cold weather."However, in regards to BGRE, Credit Suisse forecasts a top-of-the-range figure of £692m for earnings before interest and tax (the energy company is targeting between £500m and £700m). Consensus estimates are centred upon £600m. The broker is more bullish given the 16% electricity and 18% gas price hikes (following on from the 7% price rise in December 2010) and "out-of-the-money" hedge buy-backs last year.An outperform rating and 380p target price are retained.Shares edged 0.24% ahead to 330.70p at 11:32 on Friday morning.BC