Longspur Research analyst Adam Forsyth outlined the key bull and bear cases for Drax Group (LON: DRX) shares in a note, pointing to the energy company’s growing flexible generation portfolio as a central investment consideration.
In the issuer-sponsored research note, Forsyth highlighted the recent commissioning of Drax’s 299MW Hirwaun open cycle gas turbine (OCGT) power station as a positive milestone, noting it is “the first of the three flexible generation projects the company is developing for the GB market.”
Two further units, Millbrook and Progress, are expected to begin commissioning later this year.
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Longspur Research described the OCGT units as “fast responding and very flexible,” arguing they are “well placed to benefit from an increasingly volatile GB power market.”
The firm also flagged the units’ synchronous condenser capability as a notable differentiator, stating that “as more non-synchronous intermittent renewable generation is added to the grid the need for these stabilising assets is likely to grow.”
On valuation, Longspur Research applies a WACC of 8.8%, arriving at a base case of 1,062p per share, a bear case of 957p should CCS plans stall, and a bull case of 1,252p if BECCS and Cruachan expansion targets are achieved.
Among the bull points cited by Longspur Research are Drax’s “low carbon spinning reserve” and “exposure to carbon capture and storage at scale.”
However, the firm warned that Drax remains “exposed to policy changes” and that the “BECCS technology [is] still expensive”.
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