RBC Capital upgrades Drax on recent acquisitions
RBC Capital Markets upgraded Drax to ‘sector perform’ from ‘underperform’ and lifted the price target to 320p from 280p.
Drax Group
613.00p
16:45 24/09/24
Electricity
11,770.23
17:09 24/09/24
FTSE 250
20,770.12
17:09 24/09/24
FTSE 350
4,567.19
17:10 24/09/24
FTSE All-Share
4,523.37
16:39 24/09/24
The bank said the upgrade was mostly on the back of recent acquisitions that address its concerns around the time-limited nature of the core asset.
“We have previously stated that we see Drax as a limited life asset with earnings from the core generation asset very uncertain beyond the mid 2020s. However, last week Drax took a significant step in addressing this concern with two acquisitions that add a second lease of life to Drax and significantly change the duration of the investment case.”
Drax announced last week that it had conditionally agreed to buy Opus Energy for £340m and four open cycle gas turbine development projects for electricity generation.
RBC said it was now including around £40m of earnings before interest, taxes, depreciation and amortisation from 2017 onwards for Opus Energy, including the benefit of synergies and cost savings.
“We see the £340m acquisition as adding long term diversification and visibility in earnings and delivering a strong competitive position in UK energy supply markets,” it said.
At 0955 GMT, the shares were up 2.4% to 315.50p.