Drax Group (LSE:DRX) was up 5.5% at 768p after an upgrade from Citi, which has shifted the stock to 'buy' and lifted its 12-month target price to 850p.
That pivot comes despite what the bank calls its “inherent scepticism” about biomass as a clean, sustainable and economically durable technology.
The change is driven not by a conversion to biomass evangelism but by hard arithmetic: the government’s extension of Drax’s contract for difference to 2031 has pushed out the cashflow cliff and stretched the life of its core assets.
Citi says the extra breathing room gives Drax time to pursue alternative strategic options.
With legacy generation sites already redeveloped and sold for artificial intelligence and data-centre use, and with potential upside from inertia contracts, the analyst argues that “old-world” assets the market had effectively written to zero now carry tangible optionality.
Citi has begun to factor some of that into its valuation through probability-weighted scenarios, noting that a blue-sky case could add roughly 270p a share in further value.
Downside risks look contained, the note says, pointing to already-flagged weakness in pellet earnings, limited exposure to commodity prices and a benign outlook for contract outcomes.
A hefty share buyback programme, with 94% of its £450 million commitment still to deploy, adds support.