JPMorgan puts Drax on ‘positive catalyst watch’, expects guidance upgrade
Drax Group
671.00p
15:45 15/11/24
JPMorgan Cazenove put Drax on "positive catalyst watch" on Tuesday, saying it expects the renewable energy company to upgrade guidance at its interim results.
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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.