Centrica: Raising Our Fair Value Estimate To GBX 180 on Recent Positive Developments; Shares Cheap

We raise our fair value estimate for no-moat Centrica to GBX 180 from GBX 140 on: 1) the material one-off of the first-half of 2023 from the recoupment of incremental costs in 2021-22 related to customers who flocked to standard variable tariffs amid the energy crisis, 2) the postponement of the closure of Heysham 1 and Hartlepool nuclear units from 2024 to 2027, 3) the increase in the available storage capacity of Rough from 30 billion cubic feet to 54 bcf, and 4) the GBP 450 million increase in the share buyback plan. Our new fair value estimate involves a 2023 P/E of 5.6, free cash flow yield of 16%, and dividend yield of 2.2%. Shares are undervalued.