Last week, the FTSE 250 group said it had agreed to offload Direct Energy for £2.85bn cash, which will be used to cut debt and make a payment towards its pension deficit.
The deal is “transformational and shows management taking back control after an uncontrollable period”, the Jefferies analysts said.
Assuming a £1bn contribution towards the triennial pension deficit, this would seen as reducing net debt to around £1.6bn and, with Centrica having expressed its continued intention to also sell its Spirit Energy exploration and production arm, the analysts said this would bring net debt to just £1bn.
Furthermore, Centrica’s first-half hit from coronavirus of £60mln was lower than the analysts expected.
As a result, Jefferies has cut its total COVID-19 impact forecast by a quarter, which, along with a recovery in commodity prices, led to an increase in full year earnings per share forecasts of 25% despite the deal dilution.
Centrica shares are up 20% since the deal announcement but, Jefferies noted, remain at a 45% discount to the sector.
The analysts upgraded their rating to ‘buy’ from ‘hold’ from 60p from 29p.
Meanwhile, BoA Merrill Lynch also upgraded Centrica to ‘neutral’ from ‘underperform’.
The shares were up 4% to 49.95p by Tuesday afternoon.