Broker snap: Nomura downgrades Drax to reduce

30th Nov 2011 10:29

Shares in coal-fired power station operator Drax were being weighed down comments from Nomura on Wednesday, which downgraded the stock from neutral to reduce."Although policy developments in the UK appear hostile to coal power stations, Drax will likely have a key role in the UK's energy mix for many years to come as it is a comparatively efficient and flexible plant. However, it is not clear what that future will look like as Drax is considering a conversion project that could see biomass constituting around 50% of its fuel - or more if the support is right," the broker said.Nomura notes that Drax has outperformed the DJ Stoxx Utilities Index by 70% since its preliminary results were released on 22 February. Over the same period, the stock has outperformed the FTSE 100 by 60%. The broker thinks that the shares are pricing in an "optimistic biomass scenario" and key share price drivers (including the conclusion of the Renewable Obligation Certificate (ROC) banding review) are likely to disappoint.Nevertheless, the target price is raised from 380p to 485p.By 10:28, shares were down 3.38% at 543p.BC