- Drax Group
- 02 June 2025 14:33:28
Source: Sharecast
Following the FY24 results and the agreement of heads of terms with the UK government on a biomass bridging mechanism, Jefferies updated its model and said it sees increased post-2027 earnings visibility, which is helpful.
The bank estimated more than £600m of EBITDA for 2027 and beyond, where the new datapoint since its last update in December 2024 is the established contribution from biomass generation where Drax expects around £100-200m of EBITDA over the period of the bridging mechanism.
"Following our refresh, our FY25-27 EBITDA/EPS estimates are 2%/5% above Visible Alpha consensus," it said.
Jefferies also said it sees a limited impact on Drax in the case of zonal pricing being introduced.
"Our understanding is that the potential introduction of zonal pricing to the UK will have little material impact on Drax's revenue streams," it said. "Where there may be some positive exposure is on Drax's OCGT plants, which are due to be commissioned in 2025.
"These assets are located in the south of the UK, where prices/margins might increase under zonal pricing."
Conversely, Jefferies said, zonal pricing may have a negative read-across for hydro assets.
The bank also said in the note that it sees upside on Drax from the potential increase in the buyback programme, on top of the current £300m programme.
"This comes against the backdrop of investment uncertainty, as well as due to them being recently outbid for battery storage in the UK."
It noted that Drax secured permission at the May annual general meeting to go ahead with additional buybacks, equivalent to around 10% of shares outstanding as of March 2025.
This is underpinned by a robust balance sheet, it added.