Drax Group (LSE:DRX) shares remain a top pick in the utility sector despite the government’s mixed messages on support at last Thursday's 'Green Day,' said JP Morgan.
“Drax shares continue to trade at a significant discount to fair value, in our view,” according to analyst Pavan Mahbubani, and are SIPPbacked by the energy generator’s “strong cash flow profile”.
The government opted not to support Drax’s proposed £2bn bioenergy/carbon capture (BECCS) project but said it remained in talks with the FTSE 250-listed generator.
“Furthermore, we expect more details on the prospect for BECCS in the US at an investor day in May,” the bank added, pointing towards Drax’s potential move of the project abroad.
JP Morgan added the UK government had sent a “clear message” that Drax’s North Yorkshire power plant will continue to be supported beyond March 2027, when the current subsidy period ends.
Drax has a share price target of 875p from JP Morgan or some 44% upside on Monday’s opening price of 607.5p.