JPMorgan lifts Drax price target, expects strong 2023 guidance

The bank - which maintained its ‘overweight’ rating - noted that Drax shares are trading in line with early December 2022 levels despite having since seen a strong trading update and a significant improvement to the government’s proposed Electricity Generation Levy.

"Looking further back, Drax shares are only up 6% since the start of 2022 despite the materially higher power price outlook post Russia’s invasion of Ukraine, and material EBITDA and EPS upgrades, even after windfall taxes announced in 2022," it said.

JPM pointed out that the shares are down 10% year-to-date on a lower commodity outlook and said it considers this an overreaction, in a context where the market did not price in the value of higher power prices to begin with.

"Drax remains a top pick and we keep the company on Positive Catalyst Watch into FY22 results (February 23).

"We expect strong guidance on EBITDA for 2023 and see further catalysts in 2Q23 (publication of UK Biomass Strategy, and a potential update from the company on US BECCS)."

JPM said its increased price target implies 44% upside.

At 1400 GMT, the shares were up 3% at 646p.