Jefferies analysts have doubled down on backing for Drax Group (LSE:DRX) after the biomass power generator laid out expectations for profit to top £1 billion this year.
Drax surged on Tuesday after reporting adjusted earnings would hit the top end of guidance for £993 million to £1.04 billion, which Jefferies noted would beat consensus.
Intermittency of renewables had driven demand for power from its North Yorkshire wood-burning power station, the company said.
Drax had also factored in a £25 million hit following an Ofgem investigation, open-cycle gas turbine commissioning delays and costs relating to the sale of supplier Opus Energy, Jefferies pointed out.
“This implies an even stronger underlying [full-year] 2024 earnings print,” analysts said, reiterating a ‘buy’ rating and 750p share price target.
Drax had also pointed to uncertainty around whether the government would continue to subsidise power generation from its North Yorkshire plant beyond 2027 in the update.
Investment in retrofitting the plant with carbon capture and storage remained “contingent” on clarity around the government’s decision, the company noted.
Jefferies highlighted Drax was “effectively fully hedged” for its power production both this year and next, adding contracts for 6.8 terawatt hours of energy had been secured for 2026.
A price of £77.3 per megawatt hour of this energy had been agreed, against the £154 per megawatt hour on 11.0 terawatt hours in 2024.
Shares climbed 7.6% to 690.72p on Tuesday.