Citi has upgraded its rating on Drax Group (LSE:DRX) from 'sell' to 'neutral', citing stronger cash generation and lower capital spending as reasons for a more stable outlook.
The bank has also lifted its 12-month price target to 682p, noting that better performance at the Drax Power Station and scaled-back investment plans across bioenergy, hydro, pellet, and battery projects have given the group extra financial breathing room.
While Citi still sees limited long-term upside due to a lack of clear strategy and a mixed record of delivery, it argues that ongoing share buybacks and cash returns should support the shares and reduce the risk of a de-rating.
The main positive in the latest update is an extension to Drax’s Contract for Difference (CfD), which pushes back a potential earnings drop-off from 2027 to 2031, delivering most of the uplift in Citi’s valuation.
For a more bullish view, Citi wants to see a clearer path to sustainable earnings and growth beyond the next decade.
For now, the outlook depends on how much value can be extracted from the existing power station, with limited visibility on new investment opportunities.
In afternoon trading the shares were up 1% at 684.5p.