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(Sharecast News) - Citi upgraded its stance on shares of Drax on Monday to 'buy' from 'neutral' following the recent UK power price rally of more than 20% in the last month.
"In our view, Drax should benefit from the circa 50% and circa 80% merchant output exposure in FY22 and FY23 respectively," the bank said.
Given the operational gearing of Drax Power, it lifted its EBITDA forecasts to FY25 by 6-20% and its earnings per share by 16-29%. As a result, the bank also upped its price target on the stock, by 28% to 505p.
"Longer term, we remain cautious on biomass as a technology in the path to net zero, given the debate on its creditability of being a truly net zero technology," it said.
Citi also upgraded SSE, to 'neutral' from 'sell'.
"While we continue to debate SSE's earnings quality and struggle with the concept of selling high return assets to fund dividend and low return growth opportunities, the rise in commodity prices and a string of recent disposals have alleviated any tightness of the company balance sheet and pressure on dividends, kicking the can down the road," it said.
The bank said it remains sceptical of the achieved returns on future offshore wind projects given the already visible competition from Big Oils and financial players.
"However, in the absence of any visible near term negative catalyst, we upgrade."
7 Jun 2022 09:44
IN BRIEF: Centrica affirms recently-upgraded yearly outlook
Centrica PLC - Windsor, England-based energy & services company and owner of British Gas - Says performance and outlook unchanged since early-May update. In May, company said it expects annual earnings at the top end of analyst expectations, despite seeing inflationary and supply chain "headwinds". It forecasts its 2022 adjusted earnings per share to be around the top of a 6.7 pence to 10.8p range. At the very least, this would be 63% higher than the 4.1p adjusted basic earnings per share it achieved in 2021. In May, it said it saw a "strong operational performance" in the first four months of 2022 but cautioned on "some supply chain disruption and higher inflation impacting both the cost base and customer demand".
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