Deutsche Bank Slashes Stock Recommendations as Centrica and SSE Pledge Price Cuts

Deutsche Bank has cut its stock recommendations for two of Britain's "Big Six" energy companies, after they pledged to pass on cost reductions to consumers, following government demands to cut household bills.

In a research note, Deutsche Bank has cut its recommendation for Centrica, which owns British Gas, to HOLD from BUY with a target price of 315p down from 430p.

Deutsche Bank has also cut SSE's target price to 1280p from 1400p.

Centrica and SSE shares are currently trading flat at 338.40p and 1,329.00p, respectively, on the London Stock Exchange.

Price Pledges

The Big Six account for 99% of the UK's energy sector.

Following the British government's pledge to cut energy bills by £50 a year, a number of UK energy providers revealed they are either slashing household bills or not raising prices until 2015.

Npower says it will not raise prices any more until spring 2015, unless wholesale costs go up, while EDF has promised to adhere to the same pledge.

"We welcome today's announcement as an important step in cutting energy costs for our domestic customers," said RWE npower chief executive Paul Massara, in response to the government's proposal.

"As a result of this announcement we will reduce our bills. We are currently calculating how large this reduction will be, and can assure our customers that it will fully reflect the reduction in the costs to our business.

"In addition, in order to give our customers greater certainty with their household budgets, we don't plan to increase energy prices before Spring 2015, unless there are increases in wholesale energy costs or network charges."

SSE and Centrica have said they will also pass on cost reductions.

British Gas said it is dropping household gas and electricity prices by an average of 3.2% and that these price reductions will take effect from 1 January 2014.

SSE said it will cut household energy bills by 4% this winter.

In September this year, Britain's opposition leader Ed Miliband pledged to freeze energy prices until 2017, if the Labour Party wins the general election in two years.

In response to Miliband's pledge, Britain's biggest energy stocks tumbled in the 25 September trading session.

Centrica shares fell by nearly 5% at one point to 378.00p while SSE tumbled by 4.63% to 1506.88p.