Broker snap: Deutsche Bank not convinced by Centrica's oil and gas strategy

15th Apr 2013 10:32

Deutsche Bank has maintained its 'hold' rating and 340p target price for utilities group Centrica after the company announced the acquisition of oil and gas assets in Canada.The firm said that it is to buy, along with Qatar Petroleum International (QPI), certain assets in South and Central Alberta for a combined C$1.0bn (£650m) in cash.Deutsche Bank said that this should not be surprise investors as it is in like for Centrica's strategy to focus on gas rather than power assets upstream, and on North America. However, while the group believes that gas provides better returns than power over the cycle, the broker said it is "unexcited" by this new strategy."Centrica says the deal should be earnings enhancing from its first full year, but the company must be careful not to be seen as primarily an upstream oil and gas company, since it is currently enjoying the kind of price-to-earnings multiples seen by low-risk, bond-like utilities," Deutsche Bank said."Furthermore, we believe that the company should remain wary of political risks around its UK energy retail customer base. We do not expect UK politicians to give the group much credit for taking capital to invest in Canadian gas, rather than new UK nuclear or renewables generation."The broker said that Centrica is trading at a 4.6% dividend yield and should be able to delivery mid-single-digital earnings growth over the coming years. However, the stock is not cheap."The group's combination of upstream oil and gas, UK nuclear generation and energy retail is riskier in our view than monopoly regulated networks."BC