JPMorgan rates Drax at 'overweight'
JPMorgan Cazenove has moved to an ‘overweight’ rating on Drax, which was previously not rated, and rated at ‘neutral’ before that.
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15:10 29/04/24
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15:09 29/04/24
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It said a new strategy, the acquisition of Opus Energy, and State aid approval for its biomass CfD by the European Commission put Drax on a path to a more sustainable, predictable and profitable future.
JPM said that according to its analysis, the recently-approved acquisition of Opus Energy is accretive to earnings and valuation and refreshing its estimates gives rise to earnings per share upgrades of around 30% on average from 2017.
“In particular, putting to rest the debate over Drax’s strategic direction breathes new life into a company which has borne the brunt of UK decarbonisation policy in recent years.
“Following a period of restriction, we are moving to an overweight recommendation and December 2017 price target of 420p from Not Rated (Neutral and Jun-17 price target of 370p prior to restriction), based on our expectations that the stock re-rates as the company shifts its focus from its biomass conversion programme to an integrated customer growth strategy.”
In addition, JPM said that with earnings and free cash flow on a much firmer footing, it sees diminished risk of balance sheet stress despite the increase in net debt arising from the Opus transaction.
At 0950 GMT, Drax shares were up 2.2% to 383.40p.