Concerns about the exposure of Drax Group (LSE:DRX) PLC to potential UK windfall taxes are "overdone" even if it has to pay £1.5bn of extra tax, according to RBC Capital Markets.
The Canadian bank said it was taking "a conservative view" of potential windfall taxes that may be introduced by the UK government as part of the Autumn Statement later this week.
As with other analysts earlier in the week, the RBC analysts said they now assume a 35% additional tax on generation for just over five years, resulting in £1.5bn additional tax for Drax.
"This may be an overly aggressive assumption as the government may want to positively discriminate on renewable electricity versus oil & gas, and we also don't allow for capex offsets in our estimates."
RBC's 'outperform' rating was reiterated, though the share price target was cut to 950p from 1,175p.
"We have almost gone full circle on government intervention into electricity generation markets this year with windfall taxes morphing into ROC for CfD swaps and then into price caps."
Finally, following a visit to Drax’s pelleting facilities in Louisiana and Mississippi, the analysts said concern about Drax’s sustainability credentials "we think were overblown" by the recent Panorama documentary, which highlighted that the company was found to be cutting down environmentally-important forests in Canada for the wood pellets fuelling its biomass burners.