Centrica's British Gas likely to freeze prices, says Credit Suisse

2nd Apr 2014 11:43

Credit Suisse has lowered its estimates for Centrica, saying that a 2015 price rise at British Gas is no longer likely.The bank said that after the decision by SSE to freeze residential prices until at least January 2016, Centrica "has to follow suit". SSE is the second-largest energy supplier in Britain with a 16% market share, while Centrica is the biggest with a 30% share.As such, British Gas residential supply margins will likely fall to 3.9%, from 6.5% previously, representing the lowest operating margin in nine years, the bank said.Meanwhile, Credit Suisse added that while profit downgrades due to a weak economy and increased competition have come to an end for Centrica, sales take place one to two years ahead so an improvement in trading conditions is "unlikely to positively impact with any clarity before 2015".Earnings per share forecasts for 2015 and 2016 have been cut by 9% and 7%, respectively, "given our view the energy supply industry will not raise domestic prices until 2016", Credit Suisse said. This now puts it 7% and 3% below consensus estimates for those two years, respectively.The bank has retained a 'neutral' rating and 310p target price for the stock.The target price has been left unchanged, given that the value accretion from the acquisition of Bord Bord Gáis Energy's gas and power supply business will offset temporarily lower supply margins.The stock was down 0.15% at 328p by 11:42.BC