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Investing.com -- J.P. Morgan has resumed coverage on Drax Group (LON:DRX) with an “overweight” rating and a price target of 1,000p by December 2026, implying 46% upside from the July 3 close of 684p, in a note dated Friday.
The reinstatement follows a period of restriction and comes ahead of the company’s interim results due July 31.
The brokerage forecasts 2025 adjusted EBITDA at £905 million, above the top end of Drax’s guidance range (£848 million–£896 million) and 12% ahead of Bloomberg consensus EPS.
Adjusted EBIT for 2025 is projected at £653 million, while adjusted net income is expected at £431 million.
Adjusted EPS is forecast at 121.19p, down from 128.26p in 2024. Revenue is expected to decline to £5.82 billion in 2025 from £6.08 billion in 2024, with an EBITDA margin of 15.6% and EBIT margin of 11.2%.
By segment, biomass generation remains the key earnings driver. Pellet production EBITDA is forecast at £146 million in 2025, nearly flat year-on-year and below Drax’s earlier £250 million guidance.
Hydro EBITDA is revised down to £128 million from £150 million due to turbine upgrade outages at Cruachan.
OCGT EBITDA is cut to £5 million from £30 million as delays in grid connections affect commissioning timelines. Retail EBITDA is expected to fall to £41 million in 2025 from £51 million in 2024.
Drax’s capital discipline remains a focus. Net debt/EBITDA is forecast at 1x in 2025, with the company expected to move into a net cash position by 2027.
Free cash flow to firm is projected at £473 million in 2025, with dividends of 28.6p per share and a 4.2% yield. The P/E multiple for 2025 is estimated at 5.6x, with EV/EBITDA at 3.4x.
J.P. Morgan anticipates an extension of the current £400 million share buyback program by £200 million.
As of July 1, about 90% of the existing buyback had been executed, with £53 million spent to repurchase 8 million shares.
The company has capacity to buy up to 25 million additional shares before its next AGM but the extension is not included in the bank’s base case.
The analysts’ sum-of-the-parts valuation values Drax at £3.37 billion in equity, or 988p per share. This assumes no value from BECCS or the Cruachan II storage project.
Hydro assets are valued at 10x EV/EBITDA and new OCGT plants at 1x book value. The Drax Power Station is modeled to operate until 2031 with no terminal value thereafter.
Drax has been placed on positive catalyst watch ahead of earnings, with investor attention expected to center on shareholder returns and operational delivery.