UBS upgraded Drax Group to neutral from sell, citing the early completion of the £1.08 billion acquisition of Bluefield Solar as a catalyst for near-term earnings improvement. The Swiss bank set a 12-month price target of 745 pence, aligning with Drax’s August 21 closing price.
The upgrade follows an upward revision to Drax’s 2026 adjusted earnings-per-share (EPS) estimate to 83.90 pence, a 9% increase from UBS’s prior forecast and above the consensus of 78.79 pence. The 2027 EPS forecast was reduced by 12%, reflecting higher biomass costs. UBS attributed the 2026 EPS upgrade to the accelerated integration of Bluefield Solar, which contributed to stronger adjusted earnings.
Drax’s leverage is expected to remain near its 2.0 times net debt/EBITDA target through 2028, with sustained EBITDA estimated at about £700 million annually for the remainder of the decade. The company plans to delay the remaining £325 million of its 2025–28 share buyback program until early 2027, pending refinancing of the acquisition bridge loan.
Capital deployment opportunities total £1.3 billion through 2031, with most investments back-end loaded. UBS projects Drax will return around 90% of its current enterprise value to shareholders via dividends and cash generation by 2035. The dividend yield is forecast at 5.2% for 2028.
UBS highlighted potential upside from government intervention to retain flexible, non-gas generation capacity, as well as power price contracts exceeding £120 per megawatt-hour in summer 2027 and winter 2027/28. However, windfall taxes could limit this upside. The bank also noted Drax’s 1.2 GW data center pipeline, with an initial 100 MW capacity potentially worth £100 million, implying approximately 29 pence per share in upside.
