RBC still sees "compelling" investment case in Drax

On the basis of its current assets, the Canadian broker said there was scope for shareholder returns from dividends and buy-backs to exceed the company's market value within six to seven years.

Another possibility was that, should all of Drax's planned growth options "materialise", that would cut shareholder returns, but under a 'blue-sky' scenario that would result in a "significant" valuation uplift, with potential for more than 60% capital upside.

Nevertheless, the broker did not anticipate the firm would push forward with longer-term growth options in the UK generation market.

As a result, with free cash flow yields of between 15% to 20% from 2019 onwards, even after taking into account all its capital expenditures, the analysts believed the company would be able to return approximately £1.4bn between 2018 and 2025 - exceeding the firm's current market value.

Then there was the chance that Drax would pursue and deliver on all its growth options, resulting in a blue-sky valuation of 460p per share.

Those options included building 1.2GW of open cycle gas turbines and conversion of two coal units to 3.6GW of CCGT capacity, adding 20p and 30p per share to the valuation, respectively.

Hitting its growth targets in Retail and Biomas Supply would add another 40p per share to the valuation.

On the back of all of the above, RBC reiterated its 'outperform' recommendation, setting a 370p target in the process.