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(Sharecast News) - Citi downgraded British Gas owner Centrica on Tuesday to 'neutral' from 'buy', citing "sound" fundamentals but limited absolute upside.
"We continue to prefer Centrica on a relative basis given its balance sheet strength and growth optionality, especially in the context of a fully valued sector," it said.
"However with the stock now within touching distance to our unchanged 185p price target, with no immediate upside catalyst, some concerns gathering around UK politics and Centrica Energy for the FY, as well as our more cautious view of commodity outlook, we struggle to see much absolute upside and downgrade to neutral."
Citi noted that Centrica shares have delivered 34% absolute and 11% relative to the Stoxx Europe 600 utilities index year to date.
"We would consider any meaningful weakness in the shares as potential point of re-entry, as we remain confident on the company's long-term outlook given management's track record to deploy capital and optionality on growth investments (e.g. Rough, X-energy long-term) or further return of capital," it said.
However, Citi said potential earnings per share consensus downgrades for the full year could keep a cap on the shares in the near term.
Analysts at RBC Capital Markets hiked their target price on NatWest from 650p to 725p on Tuesday following the bank's third-quarter results.
RBC Capital said its full-year 2027 adjusted pre-tax prfots estimate has increased by 6% driven by net interest income, partially offset by higher impairments. On a divisional basis, it said the upgrade was driven by NatWEst's retail and commercial & industrial units.
The Canadian broker also updated its structural hedge modelling on NatWest and now estimates total structural hedge income of 4.4bn/5.8bn/6.9bn/ 7.0bn in FY25/FY26/FY27/FY28.
"Our numbers assume that: i) NWG's hedge product notional increases by c.1.1% CAGR 28/25; and ii) that the bulk of swaps in NWG's product/equity structural hedge are 5yrs/10yrs. Our model assumes that 5yr swap rates average 3.8%/3.5%/3.3%/3.3% in 2025/26/27/28, which compares to NWG's assumption of c.3.5% in FY26-27," said RBC.
In FY25, RBC models a Q4 exit banking net interst margin of 240bps, leading to total adjusted income of 16.36bn, costs ex-litigation of 8.11bn, and reported return on tangible equity of 18.6%.
"In FY26/27/28E, we model a reported ROTE of 18.4%/18.4%/18.1%. Over FY25-FY27E we model 13.5bn of shareholder returns (8.5bn dividends; 5bn buybacks) equating to a 3yr average dividend yield of 6.2% (total return yield 9.9%)," added RBC, which kept its 'sector perform' rating on the stock.