Liberum slightly lowers target price on Drax

Analysts at Liberum lowered their target price on power generation business Drax from 952.0p to 940.0p on Tuesday but stated its bioenergy with carbon capture and storage (BECCS) proposition remained "strong".

Liberum said although power BECCS was not included in its immediate track one process, the UK government has confirmed that it will set out a process for the expansion of track one and has launched track two. Importantly, BECCS will now be eligible for both.

The government has also confirmed that it will work closely with electricity generators currently using biomass to facilitate a transition to power BECCS, noted Liberum.

"On this basis, we believe there remains a lot to play for with regards to Drax's UK BECCS proposition, especially when considering its considerable importance to the government’s target of removing 5Mtpa of CO2 by 2030," said the analysts, who highlighted that Drax has entered formal discussions with Downing Street to advance BECCS.

"Power BECCs remains critical to UK government's net zero targets. The case for US BECCS remains strong, and will likely see an even greater focus for Drax."

Liberum, which reiterated its 'buy' rating on the stock, stated its valuation indicated that Drax trades on a full-year 2023 enterprise value/underlying earnings ratio of just 2.9x despite renewed visibility on earnings to 2027 and clarity on UK fiscal policy.

Reporting by Iain Gilbert at Sharecast.com