RBC reiterates 'top pick' rating on Drax
Analysts at RBC Capital Markets reiterated their 'top pick' rating on British utilities firm Drax on Thursday, after the group's first-half results a day earlier reiterated 2019 underlying earnings guidance and committed to dividend growth of 12.5%.
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RBC saw Drax's reiteration of £410m in EBITDA guidance as a "positive", noting that reaffirmation of financials was a major selling point in the group's first-half results, especially given market nervousness around low gas and power prices.
Another key positive RBC highlighted was the performance of recently acquired IBE assets which, despite low combined cycle gas turbine output, its analysts thought looked set to deliver "at the top end" of its £90-110m EBITDA guidance.
"All these positives give us confidence to reiterate our 'top pick' recommendation despite a long-term power price-driven cut in PT," said RBC, which did lower its price target on the group from 460p to 420p.
The Canadian broker also said it was impressed with Drax for presenting "encouraging early-stage progress" towards subsidy-free biomass generation.
As a whole, RBC made "minimal changes" to its EBITDA estimates, stating that although this masked downward pressure from power prices, this had "largely been offset" by improved biomass costs.
As of 1600 BST, Drax shares had dipped 1.25% to 299.80p.