Proactive Investors - Drax Group (LON:DRX)’s £7bn plan to build new bio-energy with carbon capture and storage should prompt strong returns and warrants a share price target upgrade, according to RBC analysts.
Raising the FTSE 250-listed generator’s share price target from 1,050p to 1,200p, a 117% jump on Wednesday’s opening, RBC said plans to build in the US were “highly attractive”.
Drax announced last week that two sites had been selected in the southern United States for new bio-energy plants with carbon capture and storage (BECCS), set to cost £2bn each.
An update was also given on Drax’s £3bn plan to incorporate carbon capture into the existing North Yorkshire biomass plant, where wood pellets are burnt to produce power.
RBC noted Drax should enjoy returns “significantly ahead” of the costs of the US projects, given the country’s “supportive” offer of tax credits and carbon dioxide removal certificates.
“As projects come online, we see Drax delivering quickly,” the bank said, leaving the company in a “very strong place” to self-fund future expansion.
Drax reassured the £7bn investment could be sourced from internal operations, which would see net debt peak in late 2029, according to RBC, before the plants come online in 2030.
RBC also shut down speculation over an Ofgem investigation into Drax, claiming there had been an “overreaction” to the news which prompted shares to fall over 6% on Wednesday.
Drax shares rebounded 2% to 565p on Thursday morning.