UBS upgraded Drax Group’s stock recommendation to neutral from sell, citing a valuation that has already reflected near-term operational challenges. The bank raised its adjusted 2026 earnings per share estimate to 83.90 pence, above the consensus of 78.79 pence, while trimming its 2027 EPS projection by 12% due to higher biomass costs.
The 12-month price target was set at 745 pence, matching Drax’s closing price on August 21. Shares rose 2.97% to 745 pence, following a prior session close of 744.50 pence.
UBS highlighted Drax’s capital allocation strategy, noting a remaining £325 million share buyback program through 2028, though the program may be delayed until early 2027 pending refinancing of the Bluefield Solar acquisition bridge loan. The acquisition of Bluefield Solar cost £1.08 billion, with an additional £460 million earmarked for battery energy storage systems. The group targets a net debt to EBITDA ratio near 2.0 times through 2028.
Longer-term projections include sustained EBITDA of around £700 million by the end of the decade, a 2028 dividend yield of 5.2%, and potential shareholder returns of roughly 90% of current enterprise value by 2035. UBS also pointed to potential upside from power price contracts, with summer 2027 and winter 2027/28 contracts potentially exceeding £120 per megawatt-hour.
The bank noted Drax’s data center pipeline of 1.2 gigawatts, though full monetization remains low probability. Early capacity of 100 megawatts could generate about £100 million in value, equating to an estimated 29 pence per share upside at illustrative pricing.
