Broker snap: S&P Capital says 'buy' Centrica, energy-bill freeze unlikely

26th Sep 2013 15:43

Shares in British Gas owner Centrica slumped again on Thursday in the aftermath of Labour's proposal to freeze energy bills, something that one analyst at S&P Capital believes is an unlikely scenario.The stock has fallen sharply since Tuesday when Labour leader Ed Miliband, who pledged to halt rises in gas and electricity bills from May 2015 to January 2017, if Labour is re-elected in 2015. Centrica on Tuesday reacted to the proposals, saying that itself and every other energy supplier would struggle to operate if prices were controlled against a background of rising costs. The firm said it would not be "economically viable".Clive Roberts, an equity research analyst at S&P Capital reiterated this opinion on Thursday, saying that the move would have "negative side effects".Roberts said: "For example, by controlling energy supply prices, some of the big six UK suppliers could sustain losses and exit the market, reducing the level of competition to the detriment of consumers."We therefore believe this risk to the industry is unlikely to be carried out in practice, although it may lend some weight to Ofgem's regulatory scrutiny." Since the start of the week, the stock has fallen 8.7% and was trading around 367p before the close of trade on Thursday, down 2.3% on the day.The analyst reiterated his 'strong buy' rating for Centrica and 538p target price, saying that recent weakness in the share price has been an over-reaction.BC