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Citi upgrades Drax, Centrica

By Michele Maatouk

Date: Monday 17 May 2021

Citi upgrades Drax, Centrica

(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."

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