Broker snap: JPMorgan downgrades Centrica after recent re-rating

8th Mar 2013 09:07

Shares in British Gas owner Centrica were under pressure on Friday after JPMorgan Cazenove downgraded its rating on the stock from 'overweight' to 'neutral'.While the broker still sees Centrica as its top pick in the UK utilities sector, it has lowered its recommendation given the shares' re-rating over the last year. It has also removed the stock from its 'Analyst Focus List'.JPMorgan said that Centrica's strategy presentation last week highlighted both the challenges it faces and its competitive strengths. "The challenges are a UK downstream market that is largely ex-growth and UK power generation which remains clouded by political uncertainty. "However, Centrica's strong balance sheet, cash generation and expertise in the international gas market provide it with more options than its peers. In addition, we believe management's commitment to capital discipline and proven track record should give the market confidence that it will use capital wisely."Nevertheless, the broker has reduced its 2013 earnings-per-share estimates by 3.4% to 28.1p. This is due to a £30m increase in interest costs as a result of an accounting change in IAS 19 (employee benefits) as well a cut to upstream production growth forecasts to meet company guidance.Despite the ratings downgrade, JPMorgan still says that Centrica's valuation multiples are "undemanding", with shares trading at 12.7 times earnings with a dividend yield of 4.9%.Shares were down 1.44% at 350.88p by 09:55 on Friday.BC