Proactive Investors - Drax Group PLC (LON:DRX) was one of the top FTSE 250 risers on Tuesday morning, fueled by positive comments by JP Morgan ahead of its results next week.
The investment bank raised its price target to 900p from 850p, which would give 44% upside from the current share price.
Shares in the Yorkshire coal-cum-biomass burner have receded from late December's three-month highs on a lower commodity outlook, which the analysts said looked “an overreaction, in a context where the market did not price in the value of higher power prices to begin with.”
At the final results next Thursday, 23 February, the analysts expect strong guidance on 2023 earnings, with potential further catalysts in the second quarter of the year from the publication by the government of a new UK biomass strategy and a potential update from the company on US Bioenergy with Carbon Capture and Storage.
EBITDA guidance for 2023 is expected to be "towards the top end" of the current consensus range, with the average City analyst having pencilled in £1.1bn and JPM looking for £1.23bn.
"Lower power prices may present an opportunity for Drax to lock in profits through buying back volumes previously sold forward at higher prices."
The analysts noted that between last July and December, Drax sold power forward for 2023 at circa £370 per megawatt hour (MWh), while current forward contracts are between £140-£160 per MWh.
Drax is a "top pick" for JP Morgan, with an ‘overweight’ rating and the company put on the broker’s "positive catalyst watch" list heading into the results.
Shares in Drax are up 3% at 645.50p in London on Tuesday.