JPMorgan puts Drax on ‘positive catalyst watch’, expects guidance upgrade

JPMorgan Cazenove put Drax on "positive catalyst watch" on Tuesday, saying it expects the renewable energy company to upgrade guidance at its interim results.

The bank, which rates Drax at ‘overweight’ with a 975p price target, noted the shares are only up 8% year to date, compared to winter 23/24 forwards up 125%.

"In our view, the material discount (Drax trades on 5x 2023E earnings) implies that investors are either pricing in: 1) power prices materially below current forward curves; 2) a very punitive windfall tax; and/or 3) energy market reform materially lowering medium-term power prices," it said.

"We place Drax on positive Catalyst watch as we expect the company to upgrade 2022 EBITDA expectations, and disclose a strong forward hedging position, on the day of interim results (July 26th)."

JPM also said it expects the government to publish a consultation on business models for engineered Greenhouse Gas Removals (GGRs) this summer and that this should be a positive catalyst for Drax, which is seeking to develop two Bioenergy with Carbon Capture & Storage (BECCS) units by 2030.

At 1225 BST, the shares were up 1.7% at 658.50p.