Drax Group PLC

Drax Group PLC (LSE: DRX) is a UK-based renewable energy company and a constituent of the FTSE 250 index. The company specializes in renewable power generation, sustainable biomass production, and supplying businesses with renewable electricity.

Key Recommendation Rationale – Sell at GBX 713.50

• Resistance near Current levels: DRX’s stock price crossed the Resistance (R1) which was stated in the previous report on 03 September 2025 therefore, there could be a possibility that the stock might consolidate or decline from the current levels, considering overstretched valuation. Considering the market conditions and the price action, it is prudent to exit from the stock.
• Decline in Profitability and Earnings: The company's profitability has decreased compared to the same period last year. Adjusted EBITDA fell from £515 million in H1 2024 to £460 million in H1 2025, and operating profit saw a more significant drop from £518 million to £301 million. This indicates a contraction in core earnings power, which is not fully offset by the stable adjusted earnings per share, which was maintained through share buybacks reducing the share count.
• Deteriorating Cash Flow and Working Capital Outflow: Cash generated from operations declined to £378 million from £400 million in the prior period. More notably, the company experienced a net working capital outflow of £102 million, continuing a trend from the previous year. This suggests potential pressures in managing inventory or receivables, which is using cash rather than generating it from operational activities. 

Valuation Methodology: Price/ Earnings Approach

Share Price Chart  

One-Year Technical Price Chart (as of October 06, 2025). Source: REFINITIV, Analysis: Kalkine Group 

Conclusion

The contraction in core earnings, evidenced by the fall in Adjusted EBITDA and a steeper drop in operating profit, points to potential challenges in maintaining margins or revenue quality. This is compounded by a deterioration in cash flow from operations and a continued outflow of cash tied up in working capital. This combination suggests the company may be facing operational headwinds that are impacting its ability to convert earnings into cash, which could affect its financial flexibility if the trend persists.

DRX appears overvalued. For conducting the valuation, the following peers have been considered: Greencoat UK Wind PLC (LSE: UKW), Yu Group PLC (LSE: YU.), etc

Given its current trading levels, the recent strategic investments and partnerships, relative valuation, and associated risks, it is prudent to exit the stock at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the Current Market Price of GBX 713.50 as of 06 October 2025, 12:03 PM, GMT+1.

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 06 October2025. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided have been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and/or technical analysis taking into consideration both short-term and long-term scenario.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’