Overview
Citi Research on Tuesday moved Centrica Plc to a "buy" recommendation from "neutral," raising its 12-month price target to £2.18 per share from £2. The bank cited the changing geopolitical landscape in the Middle East and upward pressure on gas prices as factors that increase the probability of UK government support for Centrica's strategic energy holdings, a development Citi views as material to the company's valuation.
Government backing and Rough
Analyst Jenny Ping pointed to the altered political backdrop as strengthening the case for state backing of the Rough gas storage facility. Citi expects an initial £100 million in running-cost support to keep Rough operational, and notes there is scope for up to a further £1 billion in capital to extend the site's operational life. The bank regards an additional £1 billion to convert Rough for hydrogen readiness as unlikely in the near term.
Citi's revised target of £2.18 per share explicitly includes 8 pence of value attributable to the potential £1 billion deployment to prolong Rough's life.
Market reaction and shareholder return outlook
Centrica shares closed at £1.94 on March 9, which Citi says implies roughly 12.4% upside to its new price target. When adding a projected 3.1% dividend yield, the bank calculates an expected total return of approximately 15.5%. Centrica's market capitalisation is stated at £8.934 billion.
Recent results and headline financials
Citi's upgrade follows Centrica's FY2025 results, which showed group revenue of £22.37 billion, down from £24.64 billion a year earlier. Reported EBITDA fell to £1.42 billion from £2.31 billion. The company reported a net loss of £72 million for 2025, compared with a £1.374 billion profit in 2024; Citi attributes the swing in part to £708 million of exceptional charges. Core earnings per share for the period were 11.2 pence.
Updated forecasts and divisional outlook
Citi's updated projections for FY2026 through FY2028 show EPS running 7%-8% below prior estimates, a revision that Citi attributes mainly to higher non-cash interest charges. Those increased finance costs offset modest EBITDA upgrades across the company's MAPs, Services and Optimisation divisions.
Under Citi's forecast, core EPS is expected to recover to 13.3 pence in FY2026, rise to 14.6 pence in FY2027, and ease slightly to 14.4 pence in FY2028. Dividend forecasts call for 6 pence per share in FY2026, 7.3 pence in FY2027 and 7.2 pence in FY2028, with Citi maintaining a 50% payout ratio on clean EPS through the forecast period.
Valuation assumptions and scenario analysis
The sum-of-the-parts valuation underpinning Citi's work uses several key long-term assumptions: a 3% long-term retail EBIT margin, power prices of £65 per megawatt-hour, gas at 65 pence per therm, and a weighted-average cost of capital of roughly 8.5% across most business lines.
Citi also outlines a bull case and a bear case. The bull case target is £2.40, which assumes a 5% long-term retail supply EBIT margin combined with a greater-than-5% return spread on £1 billion of additional investment. The bear case target is £1.80 and reflects a 20% decline in long-term UK power and gas price curves alongside retail margins compressing to a 1% EBIT margin.
Downside risks
Citi highlights three principal downside risks to its view: a significant fall in commodity prices that would reduce trading volatility, adverse regulatory or political decisions affecting the Rough asset, and the risk of poor capital allocation via acquisitions.
Implications
The upgrade and higher target reflect Citi's view that the interplay of geopolitics and commodity prices enhances the case for government intervention around strategic gas storage. The bank's forecast revisions show a path to modest earnings recovery tempered by financing headwinds and underline that outcomes remain sensitive to commodity curves, regulatory choices, and Centrica's capital deployment decisions.