0R15 8520.0 0.0% 0R1E 8203.0 0.0% 0M69 21090.0 67.5139% 0R2V 226.02 9878.8079% 0QYR None None% 0QYP 412.97 -2.8306% 0RUK 2652.0 -9.2402% 0RYA 1554.0 -0.7029% 0RIH 174.55 -1.3563% 0RIH 165.15 -5.3853% 0R1O 198.5 9800.2494% 0R1O None None% 0QFP None None% 0M2Z 267.777 -0.1763% 0VSO 32.05 -9.9846% 0R1I None None% 0QZI 559.0 0.7207% 0QZ0 220.0 0.0% 0NZF None None% 0YXG 165.7358 2.7149%
Drax Group PLC (LON: DRX) – UK’s largest source of renewable power by output.
Drax Group PLC is an FTSE 250 Index listed power generation company, which has been listed on the London Stock Exchange since 15th December 2005. The Company has its base in Selby, the United Kingdom. DRX is a producer of low carbon and renewable electricity. Its core activities are – Pellet production, which produces wood pellets; Power Generation, which provides a portfolio of low-carbon, flexible and renewable power generation in the United Kingdom; B2B Energy Supply, which caters to the supply of renewable energy solutions to businesses and industrial customers. The Company has a target of becoming carbon negative by 2030.
Recent trend of dividend payments
(Data Source: LSE Website, Research done by Kalkine Group)
The chart above demonstrates the consistent and progressive dividend payment done by DRX from FY2017 to FY2020. In FY2021, DRX would pay an interim dividend of GBX 7.50 per share. It would be paid on 8 October 2021 and has an ex-dividend date of 26 August 2021.
United Kingdom renewable energy market
As per the industry experts, the renewable energy market in the UK is expected to grow at a CAGR of more than 9% between FY2021 to FY2026. Factors such as the rising demand for renewable energy sources amid the urgency to reduce carbon emissions and supportive government policies are driving the growth of the renewable energy market. There is a high growth rate of wind energy in the UK, which makes it one of the renewable market leaders. In early 2021, the UK government announced that its renewable electricity outpaced its fossil fuel generation. Renewable energy is likely to remain the largest source of electricity in the future in the UK, as per the government.
Growth Prospects
Key Risks
Now we will analyse some key fundamental and shareholders statistics of Drax Group PLC.
Recent Development
UK government to investigate green electricity tariffs: On 16 August 2021, it came to light that the UK government had launched an investigation into renewable electricity deals and would review green retail electricity tariffs. There are concerns of exaggeration by the energy companies about the environmental benefits of their products to customers.
Financial and Operational Highlights (for the six months ended 30 June 2021 as of 29 July 2021)
(Source: LSE Website)
Financial Ratios (H1 FY2021)
Share Price Performance Analysis
(Source: Refinitiv, Research done by Kalkine Group)
On 16 August 2021, at 10:25 AM GMT, DRX’s shares were trading at GBX 419.20, down by 0.66% against the previous day closing price. Stock 52-week High and Low were GBX 459.60 and GBX 248.49, respectively.
On a daily chart, DRX's price is sustaining above 20-day EMA of about GBX 413.90 and 20-day SMA of about GBX 411.30, indicating the possibility of an upward movement.
In the last year, DRX’s stock has delivered a decent positive return of ~50.18%. Also, it has outperformed the FTSE All-Share Utilities index with a return of about 28.97% and the FTSE 250 index with a return of about 48.08%.
Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)
Business Outlook Scenario
DRX delivered a solid performance in H1 FY2021, with adjusted EBITDA rising £7 million YoY. The acquisition of Pinnacle made DRX the world's leading sustainable biomass generation and supply business. There are more growth opportunities due to the need for more renewables, negative emissions and more flexible energy systems. The Company could benefit from supportive government policies, rising demand for renewable energy sources, its acquisition of Pinnacle and strong progress towards a negative carbon future going into H2 FY2021. The management remains focused on the expansion of its biomass options and strives to realise a zero-carbon, lower-cost energy future.
Considering the supportive government policies, the acquisition of Pinnacle, the Company’s continued investments into a negative carbon future, the better leverage position of the business than the industry, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Drax Group Plc at the current price of GBX 419.20 (as on 16 August 2021 at 10:25 AM GMT), with lower-double digit upside potential based on 18.45x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).
*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached. Resistance level 2 is at 52 week high and if Drax Group Plc attains momentum or breach it, then target price as per valuation table could be seen in the near term as per technical chart analysis.
*All forecasted figures and Peer information have been taken from Refinitiv.
*The dividend yield is subject to change as per the stock price movement.
*The reference data in this report has been partly sourced from Refinitiv.
Disclaimer
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
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