Drax capital allocation to be in focus at results, says UBS Proactive uses images sourced from Shutterstock
Drax Group results could be a key test for the shares this month as investors weigh excitement over data centre developments against tougher questions on biomass costs and cash deployment.
The biomass burner reports full-year results on 26 February. Shares have risen 24% over the past three months, outperforming the wider sector, on optimism that it can unlock value from plans to supply electricity to data centres.
UBS is more cautious, with analysts retaining a ‘sell’ rating and 680p price target, arguing that long-term viability hinges more on wood pellet costs and what it plans to do with £2 billion of cash flow by 2031.
For 2025, Drax said in December that full-year adjusted EBITDA should come in around the top end of consensus estimates, which range from £892 million to £909 million.
The City consensus is for EBITDA of £912 million and adjusted earnings per share of 121p, per Visible Alpha, with UBS expecting net debt of £920 million.
For 2026, analysts in the Square Mile forecast EBITDA to fall to £664 million (UBS sees £629 million), reflecting lower output and more conservative assumptions on power optimisation.
Drax has recently been trumpeting its ambitions to develop up to a gigawatt of data centre capacity in Yorkshire over a decade, with planning for the first 100MW facility in Yorkshire underway.
UBS estimates this would equate to 18-47% of projected UK data centre power demand growth to 2035, but analysts said they think it is likely to be “difficult to achieve” the circa-£170/MWh (2028 prices) power price on biomass required to breakeven.
Investors are also likely also focus on pellet production costs, progress on open-cycle gas turbines and the group’s cost-cutting programme as output drops from 2027.