Investing.com -- Shares of Drax Group (LON:DRX) jumped over 6% on Tuesday following an announcement indicating the company’s expected EBITDA for 2024 is projected at the upper end of the analyst consensus, driven by strong performance across its energy generation and customer segments.
The company now anticipates a year-end EBITDA close to £1.04 billion, aligning with the high end of market estimates ranging between £993 million and £1.039 billion.
The uptick in Drax’s financial performance is due to sustained demand for its dispatchable power generation, especially crucial given fluctuating wind power output, which has created increased market opportunities for the company.
“We note in 2024 Drax has incurred £25m in redress payments to Ofgem and £7m in historical Opus billing costs which furthers the strength of underlying earnings. Longer term flex gen and EBITDA earnings guidance was also reiterated,” said analysts at Morgan Staney in a note.
Drax’s forward power sales data underscores the company’s robust market positioning.
As of November 8, it secured substantial forward power contracts, including 11 TWh at £154 per MWh for 2024, indicating strong price points for future sales.
Additionally, the company’s 2025 and 2026 contracts, fixed at £107.9 per MWh and £77.3 per MWh, respectively, further enhance its revenue outlook as market stability in pricing persists.
RBC Capital Markets notes that Drax’s strong cash flows are fostering a favorable financial position, with net debt expected to fall to approximately 1x EBITDA by year-end.
This financial stability has allowed Drax to continue its share buyback initiative, with 11.9 million shares repurchased thus far, adding value for shareholders amidst its growth strategy.
Additionally, Drax is making strides in carbon capture and storage through bioenergy with carbon capture and storage technology, highlighted by its recent inclusion in the National Energy System Operator pathway for a 2030 clean energy system.
Drax has also shown interest in the potential co-location of data centers with BECCS or biomass facilities, identifying it as an emerging market opportunity and reflecting broader market trends toward sustainable energy solutions.
With a focus on expanding its biomass and pellet production capacity, Drax is positioning itself to leverage new revenue streams, including Sustainable Aviation Fuel markets, which it anticipates will be a significant avenue for growth in North America, Asia, and Europe.
RBC analysts view these developments as evidence of Drax’s adaptability and alignment with evolving energy market demands.
As Drax moves forward with its planned projects, RBC analysts believe the company’s growth potential remains significant, warranting their price target of 1,100 pence per share, an implied 75% upside.
This target reflects the high value RBC sees in Drax's BECCS and pellet production expansion strategies, underscoring the confidence in Drax’s ongoing contributions to the UK’s energy transition and positioning as a key player in sustainable energy.