UBS upgrades Drax but warns of delayed £325m share buyback and biomass inflation Proactive uses images sourced from Shutterstock
Drax Group (LSE:DRX) secured a cautious upgrade from UBS on Tuesday, as the investment bank lifted the power generator to a ‘neutral’ rating following its Bluefield solar deal.
The shares ticked up 0.88% to 746p as UBS applied its ‘neutral’ rating, tweaking its financial model to reflect both the £1.08 billion acquisition and emerging cost headwinds.
At the heart of the update is a 9% increase to the 2026 earnings per share estimate, driven by the early completion of the Bluefield solar transaction.
That short-term momentum is heavily offset by a 12% downgrade to 2027 earnings per share, reflecting anticipated inflation in biomass fuel costs alongside a decline in legacy generation.
Those mounting cost pressures mean the outstanding £325 million share buyback programme is now highly unlikely to commence before the start of 2027.
The utility must also fully refinance its acquisition bridge loan before any excess cash is funnelled back into further shareholder returns.
In the same note, UBS flagged that the business can still sustain underlying earnings of roughly £700 million through the remainder of the decade.
That financial stability relies heavily on battery storage and solar investments successfully replacing the lost output from the dwindling Yorkshire biomass operations.
The bank also noted that monetising a 100-megawatt grid connection for potential data centre developments could unlock a 29 pence-per-share upside, currently ignored by the market.
The next major catalyst arrives with November’s capital markets day, a critical forum where management must definitively map out its organic development pipeline and long-term capital strategy.