These two shares send FTSE 100 close to record high

Hopes of upgraded guidance at one famous blue-chip and easyJet's post-annual results glow have helped drive the premier index to within 100 points of its all-time best.

3rd December 2024 13:18

Graeme Evans from interactive investor

A spark for Centrica (LSE:CNA) at the end of a disappointing year for shareholders today ensured the British Gas owner joined easyJet (LSE:EZJ) at the top of a rejuvenated FTSE 100 index.

The energy giant added 4p to trade above 130p for the first time since August, boosted by speculation that it may upgrade guidance when it holds a City briefing next Tuesday.

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Other blue-chip stocks in recovery mode after poor performances in 2024 included BP (LSE:BP.), which put back 7.4p to 388p, and commodities trader Glencore (LSE:GLEN) following a gain of 6.95p to 384p.

Their performances and progress for Rolls-Royce Holdings (LSE:RR.), International Consolidated Airlines Group SA (LSE:IAG) and Barclays (LSE:BARC) meant the top flight moved to within 100 points of its all-time high, up 54.11 points to 8,367.

The session’s best performance came from easyJet (LSE:EZJ), which added 20.9p to near this year’s high point at 567.7p, as the glow from last week’s strong annual results continued.

The company’s view that travel is still a “firm priority” for consumers was reinforced today by On The Beach Group (LSE:OTB), which said it had “significant momentum” going into its key booking period.

Peel Hunt told clients today that it believes easyJet shares deserve to be as much as 58% higher after lifting its price target to 900p from 850p previously.

Noting robust demand and a backdrop of constrained industry supply, the City firm upgraded profit forecasts for this year and next by 3% and 5% respectively.

It also expects winter period losses to continue to shrink as the airline plots flights to North Africa, the Canaries, Luxor and Cape Verde and benefits from lower spot fuel prices.

Peel Hunt said: “The group is well capitalised, with net cash of £181 million and we see the current rating as far too low.” Its new target is based on a 2025 earnings multiple of 13 times.

In addition, analysts at Barclays today sweetened an Overweight recommendation on the airline by lifting their price estimate from 700p to 750p.

The upturn for Centrica came after UBS said it would not be surprised if the company used a briefing on the roll-out of its in-house smart meters business to provide an update on trading.

The bank said: “We anticipate a guidance upgrade, driven by movements in energy prices and potential benefit on Centrica Energy, where the company has been adept at re-optimising trading books to capture extra margin.”

It points to the recent rise in natural gas to about 115p/therm for 2025, which it said will come with less risk than in 2021-22 since the company has shorter hedging in British Gas residential and risk management has tightened across business-to-business supply.

The downside risk comes from British Gas Services, given the pressure on household budgets.

UBS is currently 9% higher than the City’s consensus earnings forecast of 18.4p a share, while its price target of 175p is up more than a third on today’s level.

The shares were as high as 158p at the start of this year, only to fall amid fears over the potential for value destruction on the company’s large cash pile. It has £1.65 billion excess cash on its balance sheet and a similar level of capacity across 2025-28.

Out of this £3.3 billion total, UBS anticipates that the ramping up of Centrica’s new Meter Asset Provider business will take up £500 million or 15%.

An investor “teach-in” event is due to be held on Tuesday so that Centrica can explain how it expects to achieve an anticipated return of 8% or more from the business.

The meters were previously installed by Centrica engineers but owned and financed by third parties. Having brought the activity in house it sees a clear capital deployment pathway given its 7.5 million residential customer base and installation capacity.

Centrica told analysts at half-year results: “We see an opportunity to deploy over £100 million a year, generating a predictable 20-year revenue stream, which is retained even if a customer moves to a new supplier.

“It’s expected to support a material operating profit contribution by the early 2030s with a low-risk, unlevered IRR (internal rate of return) of over 8%.”

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